The UK Government has saddled up to bring order to what it terms the “wild-west” of Buy Now Pay Later (BNPL).
For years, BNPL has thrived in a lightly regulated space, growing rapidly as a popular payment choice for millions of UK customers. We have tracked this journey closely in previous posts (here, here and here). In the latest development on 19 May 2025, HM Treasury (HMT) published a response to the October 2024 consultation on regulating BNPL, setting out the government’s final position on the proposals in the consultation. The government also published draft legislation which will bring certain BNPL agreements within the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 (RAO). In this blog post we explore the government’s legislative proposals, what they mean for the BNPL industry and how they reflect broader regulatory and consumer protection priorities.
What the proposals mean in practice
1. Narrow, Targeted Scope
Only BNPL agreements offered by third-party lenders would be subject to the new regulatory regime, while those provided directly by merchants would remain exempt under Article 60F(2) of the RAO. Third party lenders are typically specialist lenders that partner with retailers to offer instalment payment options at the point of sale. Notably, the regulation does not cover BNPL services offered by large tech or e-commerce platforms when they provide credit without involving a third party. Most respondents during the consultation process had raised concerns about this given the scale and potential reach of these firms. In its response, the government acknowledged these concerns but explained that it is not extending regulation to these arrangements at this time as it does not currently see any evidence that merchants are seeking to offer BNPL agreements on a scale similar to third-party lenders – instead, most merchants remain in partnership with these lenders. However, the government has left the door open for broader oversight in the future “if significant change or potential consumer harm is detected”.
2. FCA Authorisation
Providers of newly regulated BNPL products will have to be authorised by the Financial Conduct Authority (FCA) as consumer credit firms, meaning they will have to meet robust standards on governance, capital and conduct. BNPL agreements will be subject to a tailored application of the Consumer Credit Act 1974 (CCA). The regulatory regime will disapply most provisions in the CCA related to information requirements. This change will allow the FCA to develop information disclosure rules specifically for BNPL lending to ensure consumers have access to clear and accessible information about their BNPL agreements. This marks a shift from the previous light-touch regime.
3. Consumer protections extended
The regime will require firms offering regulated BNPL products to perform affordability checks on borrowers and offer clear product information to consumers to prevent unaffordable borrowing and help borrowers make informed decisions. Additionally, BNPL users will benefit from strong rights, such as those under section 75 of the CCA, making it easier to obtain refunds for issues like faulty goods.
4. Marketing and promotions
The government has confirmed that financial promotions for regulated BNPL agreements will be brought within scope of the FCA financial promotions regime. Accordingly, communications which amount to a financial promotion of BNPL products will need to be approved by an FCA-authorised person with financial promotions permissions, unless an exemption applies. In practice, this requirement is expected to apply primarily to unauthorised merchants promoting third party regulated BNPL services provided by firms that are not themselves authorised under the Financial Services and Markets Act 2000 (FSMA). Additionally, firms in the Temporary Permissions Regime (TPR) will be able to communicate their own financial promotions and prepare the content of financial promotions for onward communication by unauthorised merchants. However, they will not be permitted to approve financial promotions of unauthorised merchants – a role reserved for firms with specific FCA approval permissions.
5. Financial Ombudsman Access
BNPL customers will have access to the Financial Ombudsman Service (FOS), allowing them to escalate complaints against firms to an independent arbitrator.
6. Credit broking
The government has confirmed that merchants who carry on credit broking in respect of regulated BNPL agreements will not need to be authorised or exempt to broker these agreements, provided that they are the supplier of the goods or services being financed (and assuming that regulated BNPL agreements are the only types of credit agreements they broker). This is to avoid imposing significant costs on retailers. However, domestic premises suppliers (where the sale of goods or services takes place in the customer’s home) seeking to broker regulated BNPL agreements will be regulated.
The growing reach of BNPL: why regulation is urgent
Originally, BNPL schemes were primarily associated with discretionary purchases such as clothing, furniture and jewellery. However, the government says these services are increasingly embedded into everyday essentials. A notable example is the recent integration of BNPL options into goods delivery platforms, including the DoorDash partnership, signalling BNPL’s expansion into groceries and meals – items essential for daily living.
The government indicates this growing pervasiveness raises fresh concerns that vulnerable consumers, particularly young adults and those already struggling financially, are using BNPL services to fund essentials like food which can exacerbate hardship. Its decision to bring BNPL within the regulatory perimeter, therefore, is not just about market order – it appears to be an intervention to prevent unmanageable debt from taking root in the most basic areas of people’s lives.
A balancing Act?
On its face, regulating BNPL might seem to clash with the government’s wider push to cut regulatory red tape and fuel economic growth which we most recently discussed here. The UK has been championing thoughtful deregulation and innovation, so tougher oversight of a booming fintech sector appears counterintuitive. In their accompanying press release, the government noted that “the changes will boost consumer confidence while giving firms the certainty they need to innovate, grow and invest – delivering on the government’s Plan for Change to grow the economy, unlock investment, create jobs and put more money into people’s pockets.”
These reforms underscore a core policy challenge: how to combine deregulation and growth ambitions with consumer safeguards. While in this instance the government has positioned regulation as an enabler of long-term growth – emphasising that clear rules can support both innovation and consumer confidence – this sits somewhat uneasily alongside its broader “deregulation for growth” agenda.
Legislative process
The government has laid the draft legislation before parliament to give legal effect to the new regulatory framework for BNPL. Once the draft legislation is approved by parliament, the FCA will have 12 months to draft, consult on, and finalise its rules for BNPL lending. BNPL products will then enter regulation in around mid-2026. The government notes that the FCA will publish a consultation on its proposed rules for regulating BNPL shortly. As part of that consultation, the FCA will set out its planned timelines and what BNPL firms should do to prepare for regulation.
What’s next for the market?
With the legislative framework now confirmed, BNPL providers should turn their focus to laying the groundwork for FCA authorisations, strengthening compliance systems and reviewing credit assessment and consumer onboarding processes. Firms also need to take stock of how BNPL is marketed to ensure alignment with the incoming financial promotion regime. While the FCA rules are not expected to come into force yet, the transitional period should be used as time to prepare.