Insights

The FCA is moving to bring Buy Now, Pay Later (BNPL) firmly under its regulatory umbrella. Following HM Treasury’s July legislation, BNPL products offered by third-party lenders will become regulated credit agreements from 15 July 2026.

In May 2025, HM Treasury published its consultation response and laying a statutory instrument to bring BNPL products under the FCA’s remit. The government legislated on 14 July 2025 to regulate BNPL (Deferred Payment Credit)  from 15 July 2026 for third-party lenders.

The FCA then published Consultation Paper CP25/23 outlining its proposed rules, with final regulations expected early next year. Merchant-provided credit will remain exempt from this regulation.

The FCA’s CP25/23 proposes rules to strengthen consumer protection for BNPL users through clearer information, affordability checks, credit assessments, and access to dispute resolution. Firms can register under a temporary permissions regime two months before regulation begins and must apply for full authorisation within six months.

BNPL usage continues to grow rapidly, reaching £13.8 billion in 2024, with users typically younger and less creditworthy. While posing higher financial risks, BNPL can support responsible financial management for smaller purchases.

The FCA plans to apply tailored Consumer Credit Sourcebook (CONC) rules to BNPL lenders to strengthen consumer protection and promote responsible lending. The proposed regime aims to balance reducing consumer harm with supporting sustainable market growth and innovation, focusing on proportionate regulation and five key areas for improvement:

1. Clearer Information and Disclosures

The FCA proposes tailored information requirements for BNPL agreements to close gaps left by the Consumer Credit Act, ensuring consumers receive clear, timely, and accessible information before and throughout their borrowing. Lenders must proactively present key product details upfront, provide agreements in a durable medium, and give timely updates on missed payments or arrears. The FCA encourages simplified customer journeys, use of layered and engaging disclosures, and flexible communication methods to support informed consumer decisions, aligning with Consumer Duty obligations.

2. Creditworthiness

The FCA will apply its existing creditworthiness rules in full to BNPL  lending, requiring firms to have robust policies, governance, and systems to assess affordability for every transaction, including low-value agreements. Lenders must ensure assessments are proportionate and responsible, supported by effective technology where used. While many major BNPL providers already conduct such checks, others will need to strengthen their processes, especially for vulnerable customers. The FCA acknowledges that stricter credit assessments may reduce BNPL transaction volumes, particularly given the sector’s high-volume, low-margin model.

3. The Consumer Duty and delivering High‑level Standards

The FCA intends to apply its existing high-level standards and Consumer Duty to BNPL lenders, requiring them to deliver good consumer outcomes. Firms must ensure products provide fair value, meet customer needs, and prevent harm. This involves establishing strong frameworks to assess, test, and evidence customer outcomes throughout the product lifecycle, raising regulatory expectations for the sector.

4. Dispute Resolution and Redress

The FCA will extend its complaints handling rules (DISP) to BNPL lenders, giving consumers access to the Financial Ombudsman Service (FOS) for independent dispute resolution. The FOS’s jurisdiction will cover regulated DPC activities from Regulation Day, with decisions binding on firms. While FSCS protection will not apply, Section 75 of the Consumer Credit Act will, making lenders jointly liable with retailers for certain purchases. Firms should prepare for potential financial and administrative impacts from complaints, case fees, and Section 75 claims by establishing strong complaint handling processes.

5. Data Reporting

The FCA proposes enhanced data reporting from BNPL lenders, including product sales and customer outcomes, to improve sector supervision and minimise ad hoc data requests. The regulator also plans to consult on requiring lenders to report to credit reference agencies, strengthening credit file coverage and supporting more accurate creditworthiness assessments to reduce consumer over-indebtedness.

Timeline

On 14 July 2025, legislation was made to bring BNPL into regulation. After this consultation closes in September 2025, the FCA will consider feedback before publishing a Policy Statement with final rules in Q1 2026.

In May-July 2026, registration will open for the Temporary Permissions Regime (TPR) with registration going live on 15 July 2026. Firms must be authorised or hold temporary permission to operate. Between the 15 July 2026 and January 2027, firms with temporary permission can apply for full authorisation. From Q1 2027, the FCA will continue to determine applications for full authorisation.

Next Steps

For BNPL Providers and Lenders (Issuers)

> Review and Update Credit Policies and Agreements

Review and update BNPL agreements to ensure alignment with the proposed FCA regime, transitioning from unregulated arrangements to regulated credit agreements that include compliant pre-contract information and fair contractual terms.

> Prepare for FCA Authorisation

Assess and prepare for FCA authorisation, determining whether BNPL activities will require regulatory approval and, if so, beginning readiness for the authorisation process — including establishing appropriate governance, capital, and compliance systems.

> Implement Consumer Duty and Conduct Requirements

Align BNPL practices with the FCA’s Consumer Duty, ensuring good customer outcomes across product design, sale, and post-sale support, while reviewing marketing, disclosures, and communications to prevent any misleading or unfair presentation of deferred payment options.

> Upgrade Creditworthiness and Affordability Assessments

Strengthen creditworthiness assessments by developing proportionate yet robust processes that consider customer indebtedness and vulnerability, and by enhancing data-sharing arrangements with credit reference agencies to promote transparency and responsible lending.

> Enhance Systems and Controls

Upgrade systems and staff capabilities by adapting IT and operational processes for regulated credit reporting, complaint handling (under DISP rules), and regulatory submissions, while ensuring staff are trained in regulated credit procedures and ongoing customer outcome monitoring.

For Retailers Offering BNPL Products (Non-Lenders)

> Assess Role and Regulatory Perimeter

Clarify regulatory responsibilities by assessing whether your BNPL activities fall within the regulated perimeter (e.g. offering credit directly) and reviewing agreements with BNPL providers to ensure roles and obligations are clearly defined.

> Update Customer Journey and Disclosures

Provide clear and fair disclosures, make sure marketing and checkout information explains BNPL terms, costs, and missed payment consequences, while avoiding tactics that could encourage overuse.

> Review Agreements and Contracts

Review, and if necessary, update BNPL partner agreements to reflect regulatory obligations, covering customer communications, data sharing, complaint handling, and clearly mapping responsibilities under the Consumer Duty.

> Implement Training and Compliance Oversight

Train staff and monitor activity – educate sales and support teams on BNPL features and compliance, and track customer feedback and dispute trends.

> Prepare for Transitional Arrangements

Stay updated and plan communications – monitor FCA timelines and prepare customer messaging for any changes under the new regime.

CBS Change Partners have 20 years' experience in the changing payments landscape and are well placed to help you. Reach out to see how we can help you realise the opportunities this presents and mitigate the risks.