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HM Treasury has announced plans to regulate buy now, pay later (BNPL) lending, aiming to boost consumer confidence and give firms the certainty they need to innovate, grow and invest.
The plans will see BNPL firms brought under the aegis of the Financial Conduct Authority (FCA), with amendments to the 50-year-old Consumer Credit Act, the government said on Monday (May 19).
At the same time it also launched a two-part consultation into the legislative amendments, with the first consultation phase set to close on July 21, 2025.
Rapid growth
BNPL has grown rapidly in the UK, with an extra 2m people using the product since 2022. As the BNPL market has boomed, protection for consumers has become a more important issue for the industry and government alike.
Emma Reynolds, economic secretary to the Treasury, said the new rules would protect shoppers from debt traps and give the sector the certainty it needs to invest, grow and create jobs.
She said: “Buy-Now, Pay-Later has transformed shopping for millions, but for too long has operated as a wild west — leaving consumers exposed.”
The government believes that by removing outdated and confusing rules, and shifting oversight to the FCA’s more flexible system, unnecessary burdens on BNPL businesses will be cut while consumer protections will be strengthened.
Charles Rogers, senior financial services solicitor at Harper James, said the regulations were a “much-needed step forward” in a market which has rapidly grown, outpacing consumer awareness and regulatory oversight.
Rogers said: “This change gives the industry the clarity it needs to innovate responsibly.
He added: “Regulation does not have to stifle progress — in fact, it often provides the foundation for sustainable growth. Firms that embrace the new regime will be better positioned to build trust with their customers and to offer products that genuinely support financial wellbeing.”
Industry reception
So far, the announcement seems to have been met relatively positively by BNPL players themselves.
Swedish BNPL provider Klarna, which has been operating in the UK since 2014, said: “Interest-free BNPL is an important alternative to high-cost credit for millions of Brits and we’ve supported regulation to keep it safe and accessible since 2020.
“It’s good to see progress on regulation and we look forward to working with the FCA on rules to protect consumers and encourage innovation.”
Klarna noted that if the past decade’s worth of BNPL purchases had been made on credit cards, it would have cost consumers half a billion pounds in credit card interest.
Under the reforms there will be upfront checks to ensure consumers can repay what they borrow, fairer and faster access to refunds, and the right to complain to the Financial Ombudsman, bringing BNPL in line with other credit products.
A spokesperson for Klarna stressed that the company checks whether a consumer can afford a purchase every time they use it, including by making an external credit check.
Regulation preparation
Eric Sims, financial services senior analyst at auditing firm RSM UK, urged firms to prepare for the new regulations by implementing the required changes ahead of time.
“The objective to regulating the currently readily available BNPL credit option will not only enhance consumer protection but could also lead to a shift in consumer behaviour,” Sims said.
“If consumers had ordinarily taken a more cautious approach to this product, then the regulated BNPL option may become more akin to other credit facilities prompting consumers to reconsider their options.”
Sims forecast that the reforms could result in increased competition within the credit ecosystem, with traditional lenders facing pressure to adopt more BNPL-like features, such as instalment payment options.
“The shift would also represent a fresh opportunity for credit bureaus as firms turn to them for verification and affordability checks,” he concluded.
