Buy Now Pay Later Regulation To Start In July

Finally we have a date for the extension of consumer credit protection to certain 'buy now pay later' agreements. There has been a long delayed consultation process, which I've covered on this blog, resulting in a final Policy Statement issued today. As is typical, the FCA has made a few, fairly minor, changes to the approach that it consulted on in July 2025. Firms that aren't already regulated will be able to register for temporary permission between 15 May 2026 and 1 July 2026, and will have 6 months from 15 July to apply for full authorisation. If you need advice on the new regime, including whether you fall into it, please let me know. 

Broadly, BNPL is interest-free credit for a consumer's purchase of goods or services that is repayable within 12 months in no more than 12 instalments. This has benefited from an exemption from consumer credit regulation that the government has now limited to situations where the retailer or merchant ("supplier") is providing the credit directly to the customer. This means that such agreements will be regulated where a third party lender is involved ("deferred payment credit" or "DPC"). 

That market for DPC is already highly concentrated: three firms account for over 90% of the volume. But by regulating the product, the FCA thinks that other regulated firms might now offer it. I doubt it, but I suppose any unregulated firm that chooses to become regulated in order to offer DPC might decide to offer other types of regulated consumer credit.

Unlike with other forms of consumer credit (including various "exempt agreements" that do not include BNPL), the supplier will not need to be authorised as a credit broker in order to introduce the consumer to a DPC lender.

Ultimately, this is intended to benefit consumers. The FCA wants them to have fewer late payments to be treated better treatment when in financial difficulty. That means information to help them understand the risks of "deferred payment credit" as well as their rights, obligations and the protection available. This means they should have a better chance of being able to afford what they borrow, miss fewer repayments and be charged fewer late fees. Lenders should also end up being more supportive where the borrower encounters financial difficulty. 

If the impact of increased regulation of 'payday lending' is anything to go by, the extension of regulation into this space should mean fewer DPC than that aspect of the BNPL market today.

UK Government Follows Through On BNPL Regulation

The 'new' UK government has followed through with earlier plans to regulate 'Buy Now Pay Later' (BNPL) short term installment credit that had stalled under the previous government. The regulated version will be called 'deferred payment credit' (DPC). The regulations won't bite until mid-2026, but it's good to finally have certainty as to what is regulated (if not the fine detail yet). And merchants, fintech service providers and credit reference agencies can use the 12 month window to figure out ways for consumers to keep track of both their regulated DPC and unregulated BNPL instalment credit. I've already summarised the latest proposals for Keystone here for information purposes, and have added a few thoughts below to consider. If you need advice on the plans, please let me know. 

Given that BNPL agreements directly with a merchant will remain unregulated, there remains an opportunity for third party finance providers (whether FCA-authorised or not) to work with merchants on unregulated BNPL. Structuring the overall offering to remain unregulated will take care, however.

The proliferation of DPC/BNPL arrangements should prove a boon to 'open banking' or 'account information service' providers who can offer consumers visibility of all their obligations, whether directly or via device manufacturers, DPC lenders or even merchants themselves.

There's also a growing credit reference/assessment challenge as more consumers take on more instalment credit, whether regulated or not.

The government is right, in my view, to keep a weather eye on the unregulated BNPL market to see if intervention is required, before acting. Third party lenders who complain about an uneven playing field between should also consider that regulating merchant BNPL could hurt smaller merchants in favour of larger merchants who already possibly have the resources to offer better instalment options, let alone bear the burden of being FCA authorised (not to mention the strain on the FCA itself in taking on every merchant that wishes to offer BNPL/DPC!).