How is the Government planning to regulate BNPL lending?

The UK Government is proposing to table legislation to regulate ‘Buy-Now, Pay-Later’ (BNPL) lending. Once that is passed, the FCA will have 12 months to complete its rules for BNPL lending, to enable regulation to take effect in mid-2026.

BNPL refers to interest-free instalment credit that allows borrowers to split the cost of purchases into 12 or fewer regular repayments within a 12-month period. BNPL currently fits a regulatory exemption under the Consumer Credit Act 1974 (CCA) that also means firms offering it do not need to be authorised and regulated by the Financial Conduct Authority (FCA).

The proposal is to close this exemption to businesses that provide this product alongside retailers (merchants), but to leave retailers exempt where they allow their customers to pay by instalments directly, as the Government sees this as less problematic for consumers. The new legislation would also disapply certain information requirements under the CCA that would otherwise apply to regulated BNPL agreements, so that the FCA can address BNPL in its information disclosure rules (CONC). The regulated version of BNPL is to be called ‘deferred payment credit’ (DPC).

The Government will continue to monitor the direct, merchant-offered BNPL sector to see if consumer harm is identified. The primary concern was about an uneven playing field between regulated lenders and merchants, including large e-commerce platforms operating at scale. But the FCA says that differentiating these direct merchant transactions from other sales is complex and would require deeper legislative changes.

The exemption from CCA information requirements in favour of FCA rules affects:

• pre-contractual information;
• form and content of agreements;
• ongoing information requirements;
• information on variation of agreements;
• early repayment information; and
• information on arrears, defaults, and termination.

However, consumers in difficulty will still be able to seek Time Orders to spread payments; and regulated lenders will need to apply for a court order to enforce BNPL debts following the death of the debtor.

Wider CCA sanctions, such as unenforceability of improperly signed agreements without a court order, will fall away, in light of the FCA’s supervision, consumer credit rules, and Consumer Duty, including rules on arrears and forbearance. Consumers will gain the access to the Breathing Space regime to get debt advice and a repayment plan, and protection from contact, enforcement, additional interest and charges.

Merchants will need to have their promotions of their unregulated BNPL products approved by an FCA-authorised person or firm. But where they involve regulated third-party lenders offering the regulated form (DPC), the merchant won’t need credit broking permissions, except those doing business in the home.

However, the Government is reconsidering the in-home scenario in light of the rise of payment options for merchants like emergency plumbers, who appear to be partnering with invoicing firms who have also partnered with BNPL firms to offer instalment options for even small payments (as opposed to credit for home improvement, boilers and so on). The claim is that regulating these small in-home purchases could result in consumers opting for more expensive credit.

Temporary Permissions Regime (TPR)

Existing BNPL lenders who can’t get authorised by mid-2026 will have temporary permission to continue offering BNPL activities while their application for full authorisation is being reviewed. This permission will be limited to: entering into a regulated deferred payment credit (DPC) agreement as lender; exercising, or having the right to exercise, the lender’s rights and duties under a regulated DPC agreement; credit broking (for domestic premises supplier brokers that undertake credit broking activities in relation to newly regulated agreements); and agreeing to carry on a regulated activity.

BNPL firms in the TPR will therefore be able to approve their own financial promotions for onward communication by their unauthorised merchant partners.

BNPL credit reporting

The Government will maintain ongoing engagement with Credit Reference Agencies to closely monitor the reporting of data related to consumers’ BNPL and DPC agreements.

Senior management certification (SM&CR)

Firms that are still in the TPR will be exempt from the SM&CR regime, to reduce the compliance and FCA supervisory burden, yet the Government believes there will be “suitable oversight from the FCA”.

Payment Services Regulation

The FCA will be left to consider how to avoid any potential overlap with information requirements under the PSRs.

If you have questions or concerns about BNPL regulations, please contact financial services lawyer Simon Deane-Johns.