The Buy Now Pay Later sector, which has transformed the way millions of people shop online and manage their spending, is about to undergo its most significant regulatory overhaul since these services first became popular. The Government has announced new legislation that will see BNPL providers fully regulated by the Financial Conduct Authority, bringing them into line with traditional lenders and requiring them to conduct proper affordability checks before offering credit to consumers. This move represents a fundamental shift in how these popular payment options operate, ending what many have described as a “wild west” situation where consumers could access credit without the protections they would receive when taking out personal loans or using credit cards. For the more than 10 million people who regularly use Buy Now Pay Later products, these changes promise stronger rights and clearer protections, though they may also mean that access to this form of credit becomes slightly more restricted for some shoppers.
The new regulations, which form part of reforms to the Consumer Credit Act, will require BNPL lenders to carry out affordability assessments to ensure people do not take on more debt than they can realistically manage. Under the current unregulated framework, these services have operated with minimal oversight, allowing shoppers to split purchases across multiple retailers without any single provider having a complete picture of their overall financial commitments. This lack of coordination has led to situations where people accumulate multiple BNPL debts simultaneously, sometimes using these services precisely because they’re already in financial difficulty and struggling to access or manage other forms of credit. The new approach will see Buy Now Pay Later lending covered by the same rules as mainstream banks and building societies, bringing these providers under the supervision of the Financial Conduct Authority and giving consumers access to the Financial Ombudsman Service if things go wrong.
Why Regulation Was Needed
The case for regulating Buy Now Pay Later services has been building for several years as these products have grown exponentially in popularity. Whilst the services are generally interest-free when used as intended, making them appear less risky than traditional forms of credit, the reality has proven more complex. Debt charities and consumer advocates have repeatedly highlighted the problems created by unregulated BNPL lending, particularly the way these services have been marketed without adequate consideration of whether consumers can afford the commitments they’re taking on. StepChange, one of the UK’s leading debt charities, has noted that they’ve seen first-hand the impact of BNPL services operating without proper oversight, with people struggling with multiple BNPL debts across several retailers, often among those who are already in financial difficulty and using credit to make ends meet.
Emma Reynolds, Economic Secretary to the Treasury, acknowledged that whilst Buy Now Pay Later has transformed shopping for millions, it has operated for too long without adequate consumer protection, leaving shoppers exposed to potential debt traps. The popularity of these services has been remarkable, with over a third of shoppers now having used BNPL options to spread the cost of purchases. This widespread adoption reflects both the convenience of these payment methods and the way they’ve been marketed as a simple, consequence-free way to manage spending. However, recent data from the Financial Conduct Authority revealing that one in ten Britons have no cash savings at all underscores why proper regulation is essential. When people with no financial buffer are able to access multiple forms of interest-free credit without comprehensive affordability checks, the risk of financial difficulty increases significantly, particularly if unexpected expenses arise or income drops.
Richard Lane, Chief Client Officer at StepChange, emphasised that whilst Buy Now Pay Later can be a useful and convenient way to manage larger expenses when it’s genuinely interest-free, it’s crucial that consumers receive the same protections as they would with other forms of credit. The inconsistent affordability checks and lack of rules around marketing have left consumers vulnerable to debt problems, with the casual framing of BNPL as “not really borrowing” masking the fact that these are credit agreements with legal obligations and potential consequences for non-payment. The long road to regulation reflects both the complexity of bringing a new form of credit into the regulatory framework and the lobbying efforts of BNPL providers who have benefited from operating in a relatively unrestricted environment. The announcement of concrete regulatory proposals represents welcome progress, though advocates are keen to see the government follow through on these commitments as quickly as possible.
What the Changes Mean for Consumers
Under the new regulations, BNPL lenders will be required to check that consumers are able to afford repayments before offering credit, and they must provide clear information about the terms of the product. This means you’ll likely need to provide more information when setting up a Buy Now Pay Later arrangement than you currently do, with lenders needing to assess your income, existing financial commitments, and overall ability to manage the repayments you’re taking on. Whilst this might feel like an additional hurdle, particularly if you’re used to the current seamless checkout experience where BNPL options can be selected with just a few clicks, these checks are designed to protect you from taking on debt you can’t afford. The regulations will also give consumers fairer access to refunds when things go wrong with purchases, and the right to complain to the Financial Ombudsman Service if they have disputes with BNPL providers that can’t be resolved directly.
For some consumers, particularly those who currently use multiple BNPL services simultaneously, the introduction of proper affordability checks may mean that access becomes more restricted. If you already have several active Buy Now Pay Later arrangements, lenders will need to take these into account when assessing new applications, potentially declining requests if they determine that additional commitments would stretch your finances too thin. This might feel frustrating in the moment, especially if you’ve become accustomed to easily accessing this form of credit, but it’s worth remembering that being declined for credit you can’t afford is ultimately a protection rather than a punishment. The consequences of taking on more financial commitments than you can manage are far more serious than the inconvenience of having to find an alternative way to pay for a purchase.
The regulatory changes are also likely to shift consumer behaviour more broadly and increase competition within the credit market. Financial services analysts suggest that if consumers begin taking a more cautious approach to Buy Now Pay Later products now that they’re properly regulated, these options may become more similar to other credit facilities in how people think about them and use them. This could prompt consumers to reconsider their choices, weighing up whether BNPL is genuinely the best option for their circumstances or whether alternatives like using savings, traditional credit cards, or personal loans might be more appropriate. Traditional lenders may also face pressure to adopt more BNPL-like features, such as instalment payment options, creating a more competitive and diverse credit ecosystem that offers consumers genuine choice based on their needs rather than simply gravitating towards whichever option requires the least scrutiny.
The shift towards regulation also represents fresh opportunities for credit reference agencies, as BNPL firms will need to turn to them for verification and affordability checks in the same way that traditional lenders do. This integration means that your Buy Now Pay Later activity may begin appearing on your credit file in a more comprehensive way than it currently does, which could have both positive and negative implications. If you consistently meet your BNPL commitments on time, this could help build a positive credit history and improve your credit score over time. However, if you miss payments or struggle to keep up with your BNPL arrangements, this will now be recorded on your credit file and could affect your ability to access other forms of credit in the future. This increased visibility and accountability reinforces why it’s so important to only take on Buy Now Pay Later commitments that you’re confident you can manage alongside all your other financial obligations.
For consumers, the key message is that Buy Now Pay Later should be approached with the same level of consideration and responsibility as any other form of borrowing. The fact that these services are typically interest-free doesn’t mean they’re consequence-free, and the introduction of regulation acknowledges this reality. As firms prepare to implement these new requirements, it’s worth taking the opportunity to review your own use of BNPL services and ensure that you have a clear picture of all your commitments, when payments are due, and whether these arrangements genuinely work for your financial situation. The convenience of splitting payments shouldn’t come at the cost of your financial wellbeing, and the new regulatory framework is designed to ensure that the growing popularity of Buy Now Pay Later contributes to positive consumer outcomes rather than creating new pathways into problem debt for people who can least afford it.
