Millions of shoppers using buy now, pay later (BNPL) services will face tougher checks from this week, as new rules designed to protect consumers come into force. From Wednesday, July 15, BNPL firms must be authorised by the Financial Conduct Authority (FCA) and carry out affordability checks before allowing customers to spread payments. The changes mean lenders will have to assess whether people can realistically repay what they borrow - a move that could make it harder to complete purchases at checkout. The sector will also fall under the FCA’s Consumer Duty, requiring firms to put customers’ needs first.
FCA: Customers deserve protection
A spokesperson for the FCA said: "Buy now pay later can be a form of credit, but people deserve to be protected when using it. Lenders should check their customers can afford to pay it back." They added that millions of customers will receive clearer information before signing up, along with better support if something goes wrong.
BNPL options - often offered at online checkouts - have grown rapidly in recent years, reaching more than £13bn in 2024. According to the FCA’s latest Financial Lives Survey, around 20% of UK consumers - or 10.9 million adults - used BNPL in the year to May 2024.
Experts warn of debt stacking risks
While the services allow people to spread the cost of purchases, experts have raised concerns that the ease of use can lead to people building up multiple debts. Sarah Coles, head of personal finance at AJ Bell, said: "Most payments using BNPL are relatively small. The Woolard Review, done by the FCA in 2021, showed that people often didn't think of it as borrowing either. A combination of both things means borrowers don't consider affordability as carefully as they would for other kinds of debt. It means a real risk of stacking these debts until they're unwieldy. The rules requiring stricter affordability checks are highly sensible." She added that the added checks could act as a useful pause point for shoppers. "The added friction in the process should help people stop and think about whether they really need the item they're buying, and consider the total cost rather than just the price of the instalments, which can be incredibly useful."
Which? welcomes stronger safeguards
Consumer group Which? also welcomed the changes. Rocio Concha, director of policy and advocacy at Which?, said regulation 'means users of these services will benefit from stronger safeguards'. She added: "Before choosing BNPL, shoppers should consider whether they can comfortably afford the repayments and understand the consequences of missing them. Regulation should make those decisions easier by ensuring people have clearer information and stronger consumer rights."
New complaints route to Ombudsman
Under the new rules, customers will also be able to escalate complaints to the Financial Ombudsman Service (FOS) for the first time - provided the agreement was taken out on or after July 15 and involves a regulated firm. James Dipple-Johnstone, interim chief ombudsman for the FOS, said: "This is an important step for consumers who use buy now, pay later. If something goes wrong and they cannot resolve the issue with their provider, they now have access to our free and impartial service. As new financial products become part of everyday spending, it is vital that consumer protection keeps pace." The ombudsman expects around 2,000 complaints from BNPL users in the current financial year.
Credit report impact and industry response
The FCA’s new framework will require lenders to clearly set out payment terms, assess creditworthiness and provide support to customers struggling financially - including signposting to free debt advice. BNPL borrowing may also begin to appear on credit reports, which could affect future applications for loans, credit cards or mortgages. Dimitar Lazarov, head of Credit Karma UK, said that while this could benefit those who pay on time, 'those who may fall behind on payments should be aware that it could have an impact on their ability to apply for other products'. John Webb, head of consumer affairs at Experian UK and Ireland, added that BNPL accounts may now be considered by lenders when assessing new borrowing.
Industry providers have largely welcomed the changes. A spokesperson for Clearpay said the regulation 'will help establish a consistent operating environment and clear standards for all providers'. They added: "Millions of consumers rely on BNPL for short-term and interest-free credit to make everyday purchases. We will continue to provide our existing safeguards that customers have long valued, including pausing accounts if a single payment is missed and capped late fees." Klarna also said it supported the move. "Klarna's called for regulation since 2020, so we welcome this moment. The FCA's rules largely formalise what we already do - we run affordability checks, show costs up front and report to credit reference agencies." The company added: "Robust regulation that gives consumers added confidence and strengthens their access to protections is a good thing."
Debt charity calls for caution
Debt charity StepChange said the changes were necessary to prevent financial harm. Vikki Brownridge, chief executive at StepChange Debt Charity, said: "There's no doubt that BNPL can be a useful form of credit - especially as it's usually short-term and interest-free - to spread the cost of a bulky expense. However, as with any form of credit, regulation is vital to protect customers if something goes wrong, and ensure people aren't being offered credit where it's not affordable - something which will trigger debt problems, as we see all too often." She added: "Consumers can go on using BNPL in the same way as before, but it's important to be aware of the new protections. If you are finding yourself struggling to keep up with payments, rather than taking on more credit or BNPL agreements, we would always advise seeking free and impartial debt advice to help get back on track."
