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The UK government is set to introduce long-anticipated legislation targeting buy now, pay later (BNPL) providers and agreements, and firms — among the biggest cheerleaders for more legal oversight — must ready themselves.
Labour lawmaker Stella Creasy once described BNPL’s growth during the cost of living crisis as a potential road “to real poverty and destitution for many”.
Now that her party is in government, it is preparing to introduce stricter oversight that will include licensing by the Financial Conduct Authority (FCA) and adherence to the Consumer Duty.
What was once an alternative, and unregulated, industry is now set to be overseen and governed by laws similar to the incumbent credit card companies that it set out to challenge.
The government is taking relatively swift action to bring BNPL services under the regulation of the FCA following years of preliminary work from the previous Conservative administration.
It says that laws such as the Consumer Rights Act 2015 are inadequate for safeguarding consumers, and will introduce secondary legislation to regulate the Gen Z-friendly sector.
"The Consumer Credit Act was one of the first pieces of consumer protection legislation for financial services back in 1974, but the time has come for a more flexible framework that reflects how the regulatory system has developed since the 70s,” Omar Salem, a partner at Fox Williams, told Vixio.
Salem pointed out that the industry has been anticipating these changes for some time, and many participants are both supportive and preparing accordingly.
“These changes will help create a more level playing field for customer protection between BNPL products and other types of consumer credit,” he said.
“The requirements, particularly around providing information to customers, will create new regulatory burdens for BNPL providers but are not as onerous as the Consumer Credit Act regime currently applied to other unsecured consumer credit firms."
What is the government’s approach?
The government’s approach is underpinned by five principles: accessible information; protections for consumers; affordability checks; proportionate regulation to maintain market access; and urgent implementation.
Once implemented, the framework will deliver outcomes such as improved disclosures under the Consumer Duty, statutory protections such as Section 75, access to independent complaint handling via the Financial Ombudsman Service (FOS) and FCA supervisory oversight, with firms needing to adhere to affordability assessments.
Although this will undeniably be a step change, many firms whose core product offering is BNPL (as well as ones that have launched it as part of their overall offering) have already implemented voluntary measures and agreements.
These measures will mean that complying with the new regulation is unlikely to be that drastic a change.
"BNPL has faced considerable criticism in the past few years, including in relation to insufficient affordability monitoring and disclosure of default charges,” said Mila Pencheva, a senior associate at Taylor Wessing.
“Therefore, the major players in the market have already taken active steps to voluntarily comply with the existing regulated consumer credit regime and demonstrate their commitment to doing right by their customers."
Martin Dowdall, a partner at Taylor Wessing, said that “it is clear that there will be a higher barrier to entry for firms".
“The big ticket financial and operational costs will be licensing, operational changes and repapering customers” he suggested.
Dowdall also noted that the proposed rules will give consumers the ability to complain to the FOS about BNPL.
The FOS case fee is currently £650 (with the first three complaints being free) so that would be an added expense for businesses — one that could quickly add up for any recurring issues and in many cases exceed the value of the BNPL purchase.
Pencheva acknowledged that firms looking to prepare now will find it “challenging”, as the detailed conduct of business rules will ultimately be outlined in the FCA Handbook, but are not yet available.
“The most critical areas are likely to involve information disclosure,” she predicted. “The FCA has not yet released a consultation on these rules, so it’s unclear whether they will take a more prescriptive approach or an outcomes-based approach, aligned with the Consumer Duty."
Adapting to the Consumer Duty
Consumer Duty adherence is one of the significant compliance changes that awaits BNPL firms once they are under FCA oversight.
"The challenge with the Consumer Duty and outcomes-based rules more generally is that it’s a difficult concept to navigate,” said Dowdall.
He continued that the outcomes-focused approach set out by the FCA’s Consumer Duty may give providers flexibility, but also leaves scope for inconsistent approaches across the industry.
“Sectoral guidance plays a big role in helping providers interpret the rules and address potential inconsistencies in enforcement,” he said.
“Hopefully, we’ll see some guidance soon on what this new information disclosure regime would look like, though it’s still unclear what will happen.”
Gavin Punia, a partner at Bird & Bird, said: "The question is how firms meet Consumer Duty requirements, not just about enforcement or issuing a simple letter.”
Punia noted the issue of charges for customers failing to repay, which is not about revenue generation.
Firms may charge high fees for non-payment, but their primary revenue comes from paying the merchant 95 percent of the transaction value and retaining 5 percent.
“High charges are not a driver of commercial revenue, but ensuring fair and transparent charges is crucial,” he said. “The enforcement and notification aspects have not been fully addressed yet, and what the industry needs now is certainty.”
“For example, buy now pay later providers that are already regulated still want clarity on what steps to take to achieve compliance,” he added.
“Similarly, on the merchant side, businesses also want to know when these changes will take effect so they can prepare. Having certainty is vital for both providers and merchants to understand and meet their obligations."
BNPL around the world
There has been a flurry of action regarding BNPL oversight in the last few years, and the UK is hardly an outlier in its current approach.
Most recently, in January 2025, New York Governor Kathy Hochul announced new consumer protection proposals as part of her 2025 State of the State agenda.
These include plans to establish a licensing and supervision framework for BNPL providers.
On November 29, 2024, meanwhile, the Australian parliament passed the Treasury Laws Amendment (Responsible Buy Now Pay Later and Other Measures) Bill 2024.
This legislation applies the National Consumer Credit Protection Act 2009 and National Credit Code to BNPL contracts, introducing "low-cost credit contracts" as a new regulated category.
Providers operating in the country now have new compliance requirements, such as obtaining credit licences, conducting suitability assessments, and are also compelled to adhere to transparency requirements, including pre-contractual disclosures.
The New Zealand government introduced the Credit Contracts and Consumer Finance (Buy Now, Pay Later Exemptions) Amendment Regulations 2024 a month earlier, on October 29, 2024.
Under the new regulations, which took effect on November 1, BNPL operators are exempt from requirements to impose reasonable credit and default fees or to have these fees reviewed by a court.
In May 2024, the US Consumer Financial Protection Bureau (CFPB) issued an interpretive rule clarifying that BNPL loans fall under some Regulation Z credit card provisions, such as dispute and refund rights.
The rule became effective on July 30, 2024, and although the rule is slightly lighter touch, and does not impose new recordkeeping or disclosure obligations, it does establish that BNPL is in scope of existing regulatory expectations.
The EU’s Consumer Credit Directive, passed in 2023, also extends consumer credit rules to most forms of BNPL, including invoice financing and zero-interest financing.
Short-term, fee-free and low-cost loans that previously qualified for exemptions are now largely regulated, and the directive introduces stricter rules on advertising, mandating warnings while prohibiting misleading claims about the benefits of financing.
As in Australia and New Zealand, pre-contractual disclosures must now include detailed information, and BNPL providers are also required to conduct creditworthiness checks, formalise agreements in writing and include comprehensive contractual details.
Consumers, on the other hand, are granted a two-week right of withdrawal from BNPL contracts.
