New regulations to overhaul the buy now, pay later (BNPL) market are set to impose stricter affordability checks on even the smallest loans. This move by the Financial Conduct Authority (FCA) marks a significant shift as BNPL services continue to grow, now surpassing £13bn in total transactions across the UK.
As millions of consumers turn to BNPL platforms to spread the cost of everyday purchases, concerns about debt accumulation and the lack of regulation have prompted a response from the FCA.
With these new rules, lenders will be required to conduct affordability checks on loans under £50, ensuring that borrowers are not overstretching their finances, particularly those in vulnerable situations.
Expanding Consumer Protections
The FCA’s proposal to regulate BNPL lending follows a rapid surge in usage. According to recent data, BNPL lending has increased from £60 million in 2017 to over £13 billion in 2024, with 10.9 million UK adults using these services in the last year.
The expansion of this market, though beneficial in many ways, has raised alarms over the potential for consumers to accumulate unmanageable debt.
Currently, BNPL services like Klarna and Clearpay allow users to delay payments without interest, but the lack of formal checks has led to calls for stronger consumer protections.
The FCA aims to ensure that consumers can make informed financial decisions by making affordability assessments a mandatory part of the borrowing process, even for small loans. This will likely prevent consumers from taking on more debt than they can afford to repay, helping to avoid hidden charges and long-term financial consequences.
“Whilst BNPL can be a useful budgeting tool, it can deepen debt problems, and it is important struggling consumers are afforded the same level of protection as for other forms of credit,” said Vikki Brownridge, CEO of StepChange, a debt charity.
The charity has long campaigned for regulatory oversight in this area, highlighting how BNPL has become as common as overdrafts for many adults, particularly in lower-income groups.
Industry Responses and Future Outlook
The BNPL sector has voiced its support for the regulatory changes, albeit with some reservations about the impact on business operations. Klarna, one of the largest BNPL providers, expressed its commitment to ensuring consumer protection while maintaining market innovation.
The company welcomed the move as a “major win for UK consumers,” stating that it would continue collaborating with the FCA to ensure the rules protect both consumers and businesses.
Under the new rules, firms will be required to undergo a registration process, and they must be FCA-authorised by 2026. While this may create additional regulatory hurdles for providers, it is seen as a necessary step towards bringing the sector in line with other forms of credit.
According to Alison Walters, interim director of consumer finance at the FCA, the changes will “ensure that consumers get good outcomes” and will offer them greater transparency and support when using BNPL services.
