Regulatory Earthquake: BNPL Sector Faces New Rules, Leaving Borrowers in Limbo!

Buy Now Pay Later (BNPL) products are now officially under the oversight of the Financial Conduct Authority (FCA), effective from July 15. This landmark change marks the first time these increasingly popular deferred payment credit agreements will be regulated, bringing crucial consumer protections such as mandatory affordability checks, clear disclosure of fees and repayment terms, dedicated support for customers facing difficulties, and access to the Financial Ombudsman Service (FOS) if disputes arise. Providers of BNPL services must now either be fully authorised by the FCA or operate under its temporary permissions regime.

This regulatory shift closes a significant gap that has existed for several years. While BNPL has often felt like a mere payment option at checkout, it inherently functions as a credit agreement, yet it previously operated outside the stringent rules applied to other forms of borrowing. The imperative for regulation was initially highlighted by the Woolard Review in February 2021, which strongly advocated for bringing the sector within a regulatory framework. The FCA solidified these intentions by publishing its final rules in February 2026, through policy statement PS26/1, confirming the mid-July implementation date.

The urgency for regulation has been underscored by the rapid expansion of the BNPL market. FCA figures reveal a dramatic increase in lending, soaring from approximately £60 million in 2017 to over £13 billion in 2024. During the year leading up to May 2024, an estimated 10.9 million adults in the UK, representing one in five, utilised BNPL services. This substantial growth provided the context for financial specialists' varied reactions to the new reforms.

Many industry voices have largely welcomed the regulatory changes, viewing them as a positive step for consumers and market consistency. Ruth Spratt, UK Country Manager at Affirm, lauded the new rules as a "big win" for BNPL users, emphasizing that consistent standards foster greater consumer confidence. Affirm, for its part, already operates beyond the new requirements by never charging late fees, a practice Spratt encouraged other lenders to adopt. Similarly, Theresa Lindsay, Chief Marketing Officer at Novuna Consumer Finance, highlighted the importance of transparency. She noted that while BNPL can be beneficial for spreading the cost of larger, planned purchases, some unregulated products had made borrowing "almost invisible" for smaller, everyday items. The new rules, with their focus on greater transparency and affordability assessments, are expected to empower consumers to better understand their commitments and make informed borrowing decisions.

However, some experts, while acknowledging the necessity of the rules, also pointed out their potential limitations and unintended consequences. Dani Palmer, Consumer Finance Expert at Loqbox, expressed concern that many borrowers, particularly younger demographics, do not inherently perceive BNPL as a form of credit. She illustrated how the seemingly manageable option of splitting a single purchase into several payments can quickly "snowball into debt that’s harder to manage than people expect" when multiple small purchases are made using the same method. Even with improved information and affordability checks, she warned of this inherent risk.

A more critical perspective came from Santosh “San” Nakra-Shah, Co-Founder and Managing Partner at ChilliMint Europe, who, while agreeing the reform was overdue, argued that the surrounding debate was incomplete. Nakra-Shah cited estimates from Fair4All Finance suggesting that stricter affordability checks could exclude between 10% and 30% of current BNPL users. She emphasized that BNPL's usage has evolved significantly, moving beyond its original purpose for "want-not-need" discretionary spending like gadgets or fashion, and is now frequently employed for "far more routine spending," including groceries, school uniforms, and energy bills. Approximately 1.6 million people have used various forms of credit, including BNPL, to cover such everyday essential bills. Nakra-Shah's central concern was the fate of demand for short-term credit once access to BNPL tightens. She warned that this need "doesn’t evaporate just because access tightens" and that individuals might "go looking for a new front door, and people don’t always choose a safer one once theirs closes."

In summary, the introduction of FCA regulation for Buy Now Pay Later products provides vital new protections for borrowers and a clear pathway to the Financial Ombudsman Service, addressing a long-standing oversight. Yet, as the commentary from specialists reveals, the reform does not fully resolve the complex issue of what happens to those who will no longer pass affordability checks for essential spending. The FCA has stated it will closely monitor how the market adapts in the six months following July 15, during which firms must apply for full authorisation, as the new rules take hold.