New UK BNPL regulations to “protect shoppers from debt traps”
The Financial Conduct Authority (FCA) to oversee the sector and introduce consumer protections.
Announced on May 19, the new regulations will see BNPL providers required to meet consistent standards, including upfront affordability checks, clearer customer information, and improved access to refunds and complaints processes.
The development follows pressure from consumer advocates and regulatory bodies as the popularity of BNPL continues to surge. Since 2022, an estimated two million more people have used the payment method.
Worldpay’s recent Global Payments Report revealed BNPL’s global e-commerce value has risen from just $2.3bn in 2014 to $342bn in 2024, predicting this figure will reach $580bn by 2030.
“Buy Now, Pay Later has transformed shopping for millions, but for too long has operated as a wild west – leaving consumers exposed,” said Emma Reynolds, Economic Secretary to the Treasury.
“These new rules will protect shoppers from debt traps and give the sector the certainty it needs to invest, grow, and create jobs through our Plan for Change.”
As part of the changes, BNPL users will gain the right to escalate complaints to the Financial Ombudsman Service. Additionally, the rules will be backed by a broader overhaul of the Consumer Credit Act 1974, aiming to modernise the framework for how credit is regulated in the UK.
Janine Hirt, Chief Executive of Innovate Finance, welcomed the announcement, noting the organisation had worked closely with industry leaders to support the government’s efforts.
“Proportionate regulation is vital to provide consistent consumer protection and customer experience, whilst ensuring continued innovation and access to inherently lower risk credit products that help consumers better manage their finances,” Hirt said.
The Treasury has set a 12-month timetable for the FCA to develop and implement the new regulatory regime. Hirt described the timeline as “ambitious but achievable”, urging the FCA to act “swiftly and constructively”.
Prioritising growth
Many of the government’s changes to the UK payment industry in recent months have been focused on economic growth. These latest rule changes are no exception but are not without challenges.
Hirt notes there are concerns with how the new rules will affect small businesses and sole traders.
Innovate Finance warned including sole trader BNPL financing within the scope of regulation could result in some providers withdrawing these products. Additionally, Hirt echoed worries about needing domestic licences to offer BNPL.
“Under the Treasury’s rules, a plumber who goes to a family’s home to fix a burst pipe will need an FCA licence to provide BNPL as a payment option. Many of these traders are unlikely to go through this complex licensing process,” she said.
“It cannot be right that the family is unable to spread the cost through BNPL, and face the risk of interest if they are left with no choice but to use a credit card. We are pleased to see acknowledgement of this as an issue requiring further work and look forward to continuing to engage with the Treasury and FCA on this concern.”
Keeping an eye on other markets
It will be interesting to see the UK’s full regulatory approach when it comes into force next year, especially given it has delayed regulation compared to the US and Australia.
Earlier this year, US regulators reversed a key decision following backlash from BNPL providers, effectively leaving the sector largely unregulated for now. The descion placed BNPL providers under the same regulatory umbrellas as credit card providers.
The UK will no doubt be watching the US market closely. While aiming to strengthen consumer protection, UK policymakers will also be wary of going too far, recognising overly strict rules could stifle investment in a sector that continues to see strong growth.
“We also welcome the consultation published today by the Treasury on wider reform of the 50-year old Consumer Credit Act 1974 (CCA). We, together with consumer bodies, have been calling for a root and branch reform to ensure this keystone legislation provides far better outcomes for consumers and supports innovation,” Hirt concluded.
