Buy Now, Pay Later (BNPL) providers are now under the full authority of the Financial Conduct Authority (FCA), as new regulation designed to protect consumers come into effect.

Under the new rules, lenders offering BNPL services must carry out affordability checks on consumers to prove they can repay the loan, provide them with clear, upfront information on any loan’s charges and repayment schedules, and provide debt advice if consumers are in financial difficulty.

Consumers can also now refer complaints about BNPL services, such as the incorrect marking of credit files or misleading sale of services, to the Financial Ombudsman Service for independent escalation.

Firms will no longer be able to offer BNPL offers without FCA authorisation.

Alison Walters, director of consumer finance at the FCA, said: “Millions of people use Buy Now, Pay Later and, from today, they will have stronger protections. Consumers will benefit from affordability checks, clearer information, and greater support if they get into difficulty.

“They’ll also be able to complain to the Financial Ombudsman Service if something goes wrong. Our regulation will make sure people can continue to benefit from this type of borrowing, have the information they need to make informed decisions, and the protections to help avoid unmanageable debt.”

The changes have largely been met with praise throughout the industry.

James O’Donnell, director of research and consulting at credit reporting company TransUnion, said: “BNPL coming under FCA regulation is a welcome step in the long journey to bring the industry into alignment with broader consumer protections already in place across other credit products. It is undoubtedly a positive development that will benefit consumers.”

He added that in TransUnion’s recent Affordability Study, 42 per cent of consumers said affordability checks would make them feel safer when using BNPL products.

Research by PayPal, published at the start of July, found that British businesses are largely optimistic about the changes. Among the 1,000 firms PayPal surveyed, 64 per cent said the regulation will help their business and 59 per cent said it will improve consumer trust.

But on the consumer side, there’s evidence that the changes have not yet cut through. New research by Compare the Market found that 59 per cent of surveyed BNPL users are unaware of the new regulations, with this number rising to 73 per cent among over-55s.

The research also found that only 31 per cent of adults are confident in applying for traditional credit products, with 14 per cent stating they are afraid of applying in case they are rejected.

When asked how they would pay for a product if declined for BNPL, 19 per cent of respondents said they would use their debit card or cash savings, 14 per cent would cancel the purchase, and 6 per cent would consider higher-cost credit options.

Some critics of the new rules have argued that consumers who are rejected may turn to riskier sources of loans.

Santosh Nakra-Shah, co-founder and managing partner at consultancy ChilliMint, said: “What worries me is the unintended effects of these regulations. Fair4All Finance estimates the stricter affordability checks could exclude 10-30 per cent 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.

“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?”

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