The Financial Conduct Authority started regulating Buy Now Pay Later in the UK on 15 July 2026, requiring third-party lenders to assess whether customers can afford repayments before extending credit. The rules bring a market used by 10.9 million adults into the consumer credit framework for the first time, addressing a regulatory gap that allowed consumers to accumulate multiple agreements without the affordability protections, complaint rights and supervisory standards that apply to credit cards and personal loans. The BNPL market expanded from £60 million in 2017 to more than £13 billion in 2024, with 20% of UK consumers using the product in the 12 months to May 2024 according to the FCA's Financial Lives Survey.
FCA Brings £13 Billion BNPL Market Under Consumer Credit Framework
The rules took effect on 15 July 2026 and apply to newly issued deferred payment credit agreements where the lender is separate from the retailer. Providers must now be authorised by the FCA or operate under a temporary permission, comply with the Consumer Duty, explain repayment terms clearly, support customers in financial difficulty and allow eligible complaints to be taken to the Financial Ombudsman Service. Agreements entered into before 15 July remain outside the new regime, while retailers that provide their own credit continue to benefit from an exemption.
The FCA said the market expanded from £60 million in 2017 to more than £13 billion in 2024. The product initially gained traction by allowing shoppers to divide purchases such as clothes, electronics and furniture into several interest-free payments. Research published by Fair4All Finance found that one in five financially struggling or financially squeezed BNPL users had used the product for essential purchases such as groceries and bills.
Under the new regime, lenders must carry out checks proportionate to the amount, product and customer circumstances. The FCA has not prescribed one universal assessment for every transaction. Firms can tailor their approach, but they must be able to show that their lending decisions are responsible and that customers can afford the repayments without creating financial harm.
The change brings the UK closer to the European Union's revised Consumer Credit Directive, which expressly brings many BNPL schemes within consumer credit regulation. The reforms give BNPL users protections that apply across other regulated credit products, including proportionate affordability checks before borrowing and, in some cases, the right to seek a refund from the lender under Section 75 of the Consumer Credit Act.
Providers Face Checkout Integration Challenge With Affordability Checks
Radi El Haj, Chief Executive Officer at payments infrastructure provider RS2, said affordability checks should be embedded within the transaction rather than added as a separate stage after the customer chooses BNPL.
"Affordability checks can't be a separate step tacked onto checkout. That's where lenders will lose customers. They need to happen instantly, as part of the transaction itself, using the same real-time data lenders already rely on for fraud checks. Do that well and the customer barely notices. Do it badly and they abandon the basket," El Haj said.
A provider that requires customers to leave checkout, submit extensive information or wait for a manual decision risks losing the sale even when the applicant ultimately qualifies. Lenders with real-time decisioning systems may be able to assess affordability using customer data, credit information, account history and risk indicators while keeping the process within the existing payment journey.
El Haj compared the change with the implementation of Strong Customer Authentication under the revised Payment Services Directive. "We saw something similar play out with PSD2 and Strong Customer Authentication a few years back. Plenty of firms treated it as a box-ticking exercise and ended up with checkouts that dropped customers left and right. The firms that treated it as a design problem came out the other side with smoother journeys than they started with. I'd expect BNPL regulation to sort providers the same way," he said.
Fair4All Finance Estimates 10-30% of Current Users Could Be Rejected
Fair4All Finance estimates that between 10% and 30% of current users could be rejected once the regime is fully implemented. The organisation said exclusion is likely to be concentrated among consumers in financially precarious positions, including people who use interest-free instalments to manage cash flow. Its research found that 41% of BNPL users had struggled to make a repayment, while around two in five of those who experienced repayment difficulty had cut back on essentials.
Santosh "San" Nakra-Shah, Co-founder and Managing Partner at ChilliMint Europe, said the regulation is overdue but warned that rejecting a BNPL application does not remove the applicant's need for short-term credit.
"What worries me is the unintended effects of these regulations. Fair4All Finance estimates the stricter affordability checks could exclude 10-30% of current users from BNPL altogether. That need for quick, flexible credit doesn't evaporate just because access tightens. It goes looking for a new front door, and people don't always choose a safer one once theirs closes," Nakra-Shah said.
Some could turn to overdrafts, credit cards, high-cost lenders or unlicensed credit if affordable alternatives are unavailable. The FCA has acknowledged that some regular BNPL customers may find the product harder to access. It argues that lending should not proceed when repayment would worsen a consumer's financial position and that proportionate checks are necessary to prevent unsustainable debt.
"I see stronger regulation as a genuinely positive step, but the debate feels incomplete. Demand for short-term credit won't disappear when BNPL becomes harder to access, so are we solving the problem, or just moving it somewhere less visible? As the market evolves, are we paying enough attention to the consumers who may end up caught in the middle?" Nakra-Shah said.
New Rules Give BNPL Users Section 75 Protection and Ombudsman Access
Users will receive clearer information before borrowing, including payment dates, amounts and the consequences of missing an instalment. Lenders must provide appropriate help when customers experience financial difficulty, which can include accepting lower repayments or allowing more time to pay.
Consumers can now take complaints relating to regulated agreements to the Financial Ombudsman Service. Some purchases will also qualify for Section 75 protection, allowing customers to pursue the lender when goods or services are misrepresented, faulty or not supplied, subject to the statutory conditions.
El Haj said those protections could improve the sector's reputation and support providers capable of meeting the higher operational standard. "There's a genuine upside here too. Section 75-style protections and access to the Ombudsman should build real trust in a product that's had a bit of an image problem, which in turn should grow the market for the lenders doing this properly. But it raises the bar on infrastructure. Real-time decisioning, clean audit trails and BNPL providers actually talking to the rest of the payments stack aren't optional extras anymore," he said.
The regulatory transition could also change the competitive structure of the market. Larger providers have had more time and resources to prepare credit assessment, reporting, complaints and customer support systems. Smaller lenders face the same conduct requirements while operating on transactions that often generate limited revenue, potentially increasing pressure to partner with larger platforms, change their products or leave the market.
FAQ
What did the FCA do on 15 July 2026 regarding Buy Now Pay Later?
The Financial Conduct Authority started regulating Buy Now Pay Later in the UK on 15 July 2026, requiring third-party lenders to assess whether customers can afford repayments before extending credit. The rules apply to newly issued deferred payment credit agreements where the lender is separate from the retailer, bringing a market used by 10.9 million adults into the consumer credit framework for the first time.
How many UK consumers could be rejected under the new BNPL affordability checks?
Fair4All Finance estimates that between 10% and 30% of current BNPL users could be rejected once the regime is fully implemented. The organisation said exclusion is likely to be concentrated among consumers in financially precarious positions, including people who use interest-free instalments to manage cash flow.
