Overhauling the Buy Now Pay Later regulations

Buy Now Pay Later lending is big business in retail, used by consumers, and promoted by retailers, exponentially over the last few years. According to the Financial Conduct Authority, BNPL lending grew from £0.06bn in 2017 to over £13bn in 2024. It provides a quick and easy way for consumers to obtain credit and spread the cost of purchases. Retailers offering BNPL products have seen increased sales and reduced basket abandonment. 

 

It is easy to see why the growth in BNPL lending has prompted Government interest and resulted in the regulation of BNPL lenders from July 2026. BNPL lending (referred to as Deferred Payment Credit by the FCA) is essentially an interest-free loan which must be used to finance the purchase of goods or services and is repayable in 12 or fewer instalments within 12 months or less. It is currently unregulated. Lenders are under no obligation to undertake affordability assessments or provide risk warnings when entering into these loans. The result - high levels of indebtedness and a significant risk of consumer harm. 

 

BNPL lending was in desperate need of regulation, but regulation in this area does not mean that BNPL lending will no longer have a key place in retail post-regulation. It will still be a way for consumers to purchase goods and services, but its regulation will have an impact on retailers. Retailers offering BNPL loans will remain unregulated and can continue to offer BNPL products without directly falling within the UK’s regulatory regime, but there will be some knock-on effects that retailers will need to think about before 15 July 2026, when the new regulations come into force.  

 

 

Volume of BNPL loans

There may be a drop in the number of BNPL loans entered into post-regulation, particularly at the outset, as lenders get to grips with the new rules, for the following reasons:

1. The requirement for affordability and creditworthiness checks to be carried out on applications – lenders may reject more consumer applications;
2. Lenders will need to provide certain pre-contractual information, for instance, risk warnings, which could deter consumers from applying; and
3. The combination of the above will add additional friction to the application process. One of the main reasons BNPL lending is so popular is the ease of applying for this type of credit and the almost instant credit approval process.  

But there are also benefits to regulation, which will make this type of lending more desirable to some consumers. For example, Section 75 refund rights will apply (which means that if a product is faulty, not delivered, or not as described, and the customer cannot resolve the issue with the retailer, the customer may be able to claim a refund or compensation from the BNPL lender) and consumers will have the ability to make complaints about the acts and omissions of BNPL lenders to the Financial Ombudsman Service. Regulation will likely have a positive impact on the overall perception of these loans, making them seem more legitimate and trustworthy sources of finance.

 

How big will the drop in volume be? It is hard to tell at this point, but BNPL lending will still be popular with consumers post-regulation. It will still be a relatively quick and easy way to spread the cost of purchases (particularly once consumers have gone through the process of setting up BNPL accounts with their chosen BNPL provider(s)). That being said, retailers should factor into their business plans and forecasts a potential dip in sales through BNPL lending post-July.

 

 

Marketing arrangements

From a regulatory perspective, the biggest change for retailers will be that all promotional material about the BNPL products will need to be pre-approved by an FCA authorised firm, which will likely be the BNPL lender for the product. Many retailers currently rely on an exemption, which means that such pre-approval is not required, but this exemption will no longer apply. Failure to obtain this pre-approval could result in regulatory enforcement against the retailer.

 

Due to the volume of retailers that BNPL lenders work with, lenders will likely have pre-prepared materials which all partnering retailers must use without amendment. To avoid regulatory enforcement and/or contractual disputes with lenders, it is important that retailers put processes in place to ensure compliance with this requirement.

 

 

Contractual arrangements

Existing agreements between retailers and BNPL lenders will likely need to be refreshed before July. For instance, they will need to take into account the new rules regarding financial promotions and the practicalities of dealing with Section 75 refund claims.

 

Retailers should speak to the lenders that they work with now, if they have not done so already, to understand any operational and contractual changes that may need to be made before July. 

 

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Laura Autiero is a Senior Associate at Foot Anstey LLP

 

Main image courtesy of iStockPhoto.com and B4LLS