Several consumers may face restrictions on utilizing buy now, pay later (BNPL) services as more stringent affordability assessments are set to be enforced next year. The Financial Conduct Authority (FCA) has initiated a fresh consultation to safeguard customers from acquiring unmanageable debts.
BNPL enables shoppers to make purchases on credit and settle the payment later, typically spread over multiple interest-free months. Nevertheless, concerns have been raised by debt charities regarding individuals taking out loans beyond their means.
In the event of missing a BNPL payment, customers may incur late fees, and some companies even report skipped payments to credit bureaus.
Under the new proposals, BNPL providers will be required to ensure borrowers can repay their loans and offer assistance if they encounter financial hardships. Moreover, borrowers will have the option to seek redress from the Financial Ombudsman Service for any issues.
According to FCA research, around 10.9 million UK adults, equivalent to 20%, utilized BNPL at least once in the 12 months leading up to May 2024, up from 17% in 2022.
During May 2024, 1.1 million adults in the UK had outstanding unregulated BNPL debt exceeding £500, while 5.3 million individuals had outstanding balances of £50 or more.
The FCA consultation is open for feedback until September 26, 2025, with the rules slated to be effective from July 15, 2026. Companies will have six months from the enforcement date to apply for full authorization.
Deputy Chief Executive at the FCA, Sarah Pritchard, emphasized the importance of bringing BNPL products under regulatory oversight to ensure consumer protection and informed decision-making.
Klarna and Clearpay representatives expressed support for the impending regulations, highlighting the significance of consumer safeguarding and regulatory consistency within the BNPL sector.
Clearpay’s research indicated that nearly half of UK adults are inclined to use BNPL post-regulation, emphasizing the necessity of adhering to UK financial laws to cultivate consumer trust and ensure the sustainable growth of BNPL as a popular payment choice.