- BNPL lenders must now be authorised by the FCA to operate in the UK.
- Shoppers gain refund rights and access to the Financial Ombudsman Service.
- Industry groups warn stricter affordability checks could leave some borrowers without credit.
Buying products through Buy Now, Pay Later (BNPL) services is about to change for millions of UK shoppers. New regulations taking effect from July 16 bring the fast-growing sector under the supervision of the Financial Conduct Authority (FCA), giving consumers stronger legal protections while requiring lenders to carry out affordability checks before approving every purchase.
The changes affect major BNPL providers including Klarna, Clearpay and PayPal, whose interest-free instalment services have become increasingly popular for everything from clothing and electronics to travel bookings and everyday purchases. The Treasury said the new rules are intended to end what has often been described as a regulatory "Wild West" and bring BNPL closer to the standards already applied to credit cards and personal loans.
More protection, but tougher borrowing rules
Under the new framework, only FCA-authorised firms will be allowed to offer BNPL products. Customers will be able to take unresolved complaints to the Financial Ombudsman Service, which expects to handle around 2,000 BNPL cases by the end of March.
Borrowers will also receive Section 75 protection on eligible purchases worth more than £100, allowing them to seek refunds or compensation from the lender if goods are faulty or services are not delivered. Until now, these protections were largely unavailable for BNPL purchases.
Lenders must also provide clearer information about repayment schedules, missed payment charges and available debt support before customers complete a transaction. Most importantly, every application will now be subject to an instant affordability assessment. If a customer fails the check, the purchase cannot proceed using BNPL.
Concerns over who gets left behind
While consumer groups have broadly welcomed the new safeguards, some have warned they could make borrowing harder for certain shoppers.
Kate Pender, chief executive of Fair4All Finance, reportedly said research suggested between 10 per cent and 30 per cent of existing BNPL users could fail the new affordability checks, despite many having no history of missed repayments. She argued that people denied mainstream credit could instead turn to more expensive or even unregulated lenders.
Klarna, however, rejected those concerns. A spokesperson reportedly said the company already carries out affordability checks, provides clear pricing information and reports borrowing activity to credit reference agencies, meaning the new rules largely formalise existing practices.
The reforms come after years of concern from regulators, debt charities and consumer groups over the rapid growth of BNPL borrowing. According to the FCA, the value of the UK BNPL market has grown from £60 million in 2017 to more than £13 billion in 2024, while UK Finance data shows usage among adults increased from 14 per cent to 25 per cent within a year. Consumer organisations continue to advise shoppers to consider whether they would still make a purchase if credit were not available, despite the stronger legal protections now in place.
