Reinforced limitations imposed on payment plans with immediate purchasing options
In a move aimed at enhancing consumer protection and promoting responsible lending, the Financial Conduct Authority (FCA) has proposed new regulations for Buy Now Pay Later (BNPL) services. These regulations will apply to providers such as Klarna and Clearpay, and are expected to come into force in mid-2026, following their FCA authorisation or temporary permission [1][2][4][5].
Under the new rules, BNPL providers will be required to conduct affordability checks on every purchase, not just account opening. This measure is designed to reduce the risk of harm from unassessed borrowing and prevent impulsive borrowing and debt accumulation [1].
One of the key features of the new regulations is the Section 75 joint liability protection. This protection, similar to that offered by credit cards, will enhance consumer protection on eligible purchases [1]. Furthermore, consumers will gain the right to escalate complaints to the Financial Ombudsman Service, a service previously unavailable for many BNPL users [1].
In the event of missed repayments, providers will be obligated to contact customers immediately, explaining the debt and the possible remedies while signposting free debt advice and considering forbearance options if financial difficulty arises [1].
The FCA has emphasised the use of existing consumer duty principles to minimise regulatory burdens while enhancing protections [1]. The new regulations are part of a broader effort to ensure shoppers can make fully informed decisions and understand the risks associated with late repayments [3].
Richard Lane, chief client officer at StepChange, has called for BNPL providers to introduce proper affordability checks and end aggressive marketing [2]. Sebastian Siemiatkowski, chief executive and co-founder of Klarna, has expressed a desire to put proportionate rules in place that protect consumers while fostering growth [2].
The consultation for these new regulations is set to begin in early November [2]. The new regulations will provide clear, simple, and accessible information about loan agreements to shoppers before they make decisions [4].
In London, only 5% of rentals are considered affordable to low-income individuals [6]. Missing loan repayments can negatively impact your credit score, which can affect your ability to apply for a mortgage [3]. Research from The Mortgage Lender found that one in 10 Brits have avoided applying for a mortgage due to poor credit scores [7].
Labour expects the final legislation for BNPL regulations to be outlined early in 2025, with the new rules expected to be in full force by 2026 [8]. The new regulations are expected to address the growing concern over the impact of BNPL on consumer finances and debt levels.
[1] FCA Consultation Paper [2] StepChange Press Release [3] FT Article [4] Which? Report [5] Klarna Press Release [6] London Rental Affordability Report [7] Mortgage Advice Bureau Report [8] Labour Press Release
The new regulations proposed by the Financial Conduct Authority (FCA) for Buy Now Pay Later (BNPL) services will mandate providers like Klarna and Clearpay to conduct affordability checks on every purchase, not just account opening, to minimize the risk of harm from unassessed borrowing and prevent impulsive borrowing [1]. As a result, consumers will gain the right to escalate complaints to the Financial Ombudsman Service, a service previously unavailable for many BNPL users, and receive clear, simple, and accessible information about loan agreements before making decisions [4]. These new regulations, part of a broader effort to enhance personal-finance protections, will also involve the Section 75 joint liability protection similar to that offered by credit cards, providing additional general-news for business owners and consumers alike.
