UK Proposes Regulation for Buy-Now, Pay-Later to Strengthen Consumer Protection
The UK Government has launched a consultation to bring Buy-Now, Pay-Later (BNPL) providers under the regulation of the Financial Conduct Authority (FCA), a move aimed at enhancing consumer protection in the fast-growing sector. The proposals focus on ensuring BNPL companies offer clear and transparent information, assess affordability before approving loans, and provide stronger consumer rights in the event of disputes.
A central aspect of the reforms is the introduction of affordability checks, which will require BNPL providers to ensure borrowers can afford repayments before lending. This measure seeks to prevent consumers from accumulating unmanageable debt. Additionally, companies will be required to present loan terms in a straightforward manner, helping consumers make informed decisions and fully understand the risks associated with late payments.
The proposals also aim to enhance consumer protection through stronger recourse mechanisms, including the right to claim refunds under Section 75 of the Consumer Credit Act, which holds lenders liable for purchases made using credit. BNPL users will also gain access to the Financial Ombudsman Service for dispute resolution.
The FCA has long supported the regulation of BNPL products and will introduce a Temporary Permissions Regime (TPR) allowing firms to continue operations while seeking full authorization. Once the legislation is passed, expected in early 2025, the FCA will consult on specific rules, with the new regulatory framework anticipated to come into force in 2026.
The consultation is open until 29 November and is expected to establish a balanced regulatory regime that safeguards consumers while supporting innovation in the sector.
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