New regulation targeting the Buy-Now, Pay-Later (BNPL) sector is set to come into force next year, marking a significant shift in how the fast-growing credit option is governed. The UK government has confirmed that BNPL firms will be required to follow consistent standards, with the goal of offering greater clarity and protection to consumers.
The forthcoming rules mean shoppers will be better informed about the products they’re signing up for, including whether they can realistically afford repayments and where to turn when issues arise. For the first time, consumers using BNPL services will have access to the Financial Ombudsman and faster access to refunds — aligning the sector with more traditional forms of credit.
As part of the changes, firms will also be obligated to perform affordability checks before offering credit. These reforms aim to boost consumer confidence, address the risks of unregulated lending, and provide the regulatory certainty needed for the sector to innovate and scale.
The number of BNPL users in the UK has surged, with 2m additional people adopting the payment method since 2022. While the tool has proven useful for managing household finances when used responsibly, its rapid growth has outpaced existing regulations — prompting what the government has described as a much-needed update to consumer protections.
Treasury officials have indicated that the BNPL rules are just one aspect of a broader reform effort. The update is part of the Plan for Change — a government strategy to stimulate economic growth, attract investment, and support job creation.
Backed by new reforms to the Consumer Credit Act, the move also paves the way for a complete overhaul of the UK’s consumer lending framework. The 50-year-old regime will be replaced by a modern, pro-growth structure under the supervision of the Financial Conduct Authority (FCA), replacing outdated and overly complex rules.
UK Treasury economic secretary Emma Reynolds said, “Buy-Now, Pay-Later has transformed shopping for millions, but for too long has operated as a wild west – leaving consumers exposed. 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.”
The legislation is due to be laid before Parliament on 19 May, following a consultation process launched in October 2024. With oversight shifting to the FCA, the government aims to streamline compliance for businesses while bolstering consumer rights in line with today’s borrowing habits.
Late last year, the FTA, a consortium that includes FinTech companies like Klarna, initiated a lawsuit against the CFPB in the U.S. District Court in Washington D.C.
The suit challenges a new rule from the CFPB on buy now, pay later (BNPL) loans, arguing that it imposes unworkable requirements on BNPL providers.
According to the FTA, the rule, which classifies BNPL products similarly to credit cards, mandates disclosure practices that are not suited to the operational nature of BNPL services. These products, typically structured as closed-end loans requiring bi-weekly repayments, do not align with the credit card model where a monthly billing statement covers all purchases made during the billing cycle.
The association has pointed out that the CFPB’s decision to bypass traditional notice-and-comment rulemaking before extending these obligations, as required under the Truth in Lending Act, constitutes a procedural violation. The lawsuit emphasizes that this oversight means the rule should be set aside.
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