FCA brings BNPL under full consumer credit regulation

By Vriti Gothi

The UK’s Financial Conduct Authority (FCA) has introduced a new set of consumer protection measures for the Buy Now Pay Later (BNPL) market, following the Government’s decision to bring the sector within the regulatory perimeter formally.

Under the updated framework, BNPL providers will be subject to the FCA’s Consumer Duty, which requires firms to demonstrate they are delivering good outcomes for retail customers. The regulator will also mandate proportionate affordability checks, alongside enhanced requirements around customer support and communications. The move marks a significant shift for a segment of the credit market that has, until now, operated with limited formal oversight.

BNPL has grown rapidly in recent years, becoming embedded in the UK’s retail payments landscape. The product has gained particular traction among younger consumers seeking short-term, interest-free instalment options at the point of sale. However, policymakers and consumer advocates have raised concerns about transparency, repeat borrowing, and the risk of consumers taking on unaffordable debt.

Damien Burke, Head of Regulatory Practice at independent banking and credit risk advisory firm Broadstone, said the extension of FCA protections was a predictable step given the market’s scale and evolution.

“The Buy Now Pay Later market has expanded substantially and is now a core part of the UK consumer credit market, particularly for younger borrowers, many of whom have found access to short-term credit (like overdrafts) more expensive or harder to access since the High-Cost of Credit Review,” he said. “FCA consumer protections were an inevitable next step for a market that has had minimal formal regulation or oversight.”

The application of Consumer Duty principles is expected to require clearer disclosures and more robust, yet proportionate, affordability assessments. Burke noted that while BNPL is often marketed as a budgeting tool rather than a credit product, the regulatory reset is intended to ensure borrowers better understand repayment obligations and associated risks.

“Applying the Consumer Duty to BNPL should materially improve outcomes for consumers, particularly through clearer disclosures and proportionate affordability checks,” he said. “For a product that is often positioned as a budgeting tool rather than credit, this regulatory reset is important in ensuring borrowers fully understand both the risks and the repayment obligations involved.”

For industry participants, the focus now shifts to implementation. Firms will need to adjust underwriting models, data capabilities, and compliance frameworks while preserving the seamless checkout experiences that have underpinned BNPL’s adoption in eCommerce.

“From an industry perspective, the challenge will be implementation,” Burke added. “Lenders will need to adapt systems, data and underwriting processes quickly, while maintaining the frictionless customer journeys that have driven BNPL’s popularity. The temporary permissions regime should help smooth this transition, but firms that are not already operating to FCA standards may find the authorisation process demanding.”

The FCA’s intervention reflects a broader regulatory trend across Europe and other developed markets, where authorities are moving to close perceived gaps in consumer credit oversight as alternative lending models scale. By embedding BNPL within mainstream credit regulation, policymakers aim to balance innovation and financial inclusion with stronger safeguards against consumer harm.

Burke said the longer-term effect could be a more resilient market structure. “Ultimately, regulation should support a more sustainable BNPL market. Where used appropriately, BNPL can play a legitimate and positive role, but these stronger guardrails provide essential checks and balances to prevent consumer harms.”

The changes signal the end of BNPL’s largely unregulated phase in the UK and may reshape competitive dynamics as providers transition to full authorisation under the FCA regime.