FCA Regulation of Buy Now Pay Later Begins
The UK’s Buy Now Pay Later (BNPL) market has undergone a significant regulatory change, with the Financial Conduct Authority (FCA) now responsible for regulating Deferred Payment Credit (DPC), commonly known as Buy Now Pay Later. This marks an important milestone for the consumer credit sector, bringing a previously exempt lending product firmly within the FCA’s regulatory perimeter.
The introduction of FCA regulation reflects the rapid growth of the BNPL market over recent years and aims to ensure consumers receive protections that are consistent with other regulated forms of credit. While BNPL has become a popular payment option due to its convenience and interest-free repayment structure, concerns have also grown around affordability, transparency and consumer understanding of these products.
Under the new regime, firms offering regulated BNPL products will require FCA authorisation (or temporary permission where applicable) and must comply with the FCA Handbook, including the Consumer Duty. This means firms will be expected to deliver good outcomes for customers throughout the product lifecycle, from product design and financial promotions through to servicing customers experiencing financial difficulty.
One of the most significant changes is the requirement for firms to undertake proportionate creditworthiness and affordability assessments before entering into a BNPL agreement. Consumers will also receive clearer pre-contract information, improved support where they experience payment difficulties, and access to the Financial Ombudsman Service should complaints remain unresolved. In addition, eligible purchases may benefit from Section 75 protections, bringing BNPL closer into line with other regulated consumer credit products.
For firms operating within the consumer credit sector, these changes represent more than a compliance exercise. Businesses should ensure their governance arrangements, policies, customer communications, complaints processes and systems are aligned with the FCA’s expectations. Particular attention should be given to affordability assessments, vulnerable customer considerations and evidencing compliance with the Consumer Duty.
The regulation of BNPL is expected to increase consumer confidence in the sector while creating a more consistent regulatory framework across consumer credit products. Although implementation will require investment and operational change, firms that embrace the new requirements should be well positioned to demonstrate good customer outcomes and strengthen trust in their products.
