The sector will come under the Financial Conduct Authority’s regulation from July 15 2026.
Buy now pay later customers will have clearer information and must undergo proportionate affordability checks under stronger protections coming into force from July, the City regulator has said.
The sector will come under the the Financial Conduct Authority’s (FCA) regulation from July 15 2026, and lenders will need to be authorised by the regulator to provide BNPL products.
BNPL firms will also be subject to the Consumer Duty, which the FCA oversees.
The duty requires financial firms to put customers at the heart of what they do, including when dealing with customers and designing products.
BNPL options often appear at online checkouts and they enable people to spread the cost of purchases, which for some people, could make their payments easier to manage.
But the products have been controversial, with concerns that some people could be overstretching themselves financially and making borrowing problems worse.
The FCA said that, under its supervision, consumers should receive clear, upfront details about their agreement, including when payments will be due, amounts, and what happens if they miss a payment.
Lenders must also carry out proportionate checks to make sure customers can afford to repay what they borrow before offering BNPL.
BNPL firms will also need to offer support to customers in financial difficulty, and, where appropriate, direct them to free debt advice.
If something goes wrong, consumers will also be able to complain to the Financial Ombudsman Service (FOS).
The regulator said that its proportionate approach will make sure BNPL can be accessed by people if lending is sustainable and will also encourage firms to innovate and compete effectively in consumers’ interests.
Sarah Pritchard, deputy chief executive at the FCA, said: “We want the buy now pay later sector to thrive – it provides an important source of credit to many – and we will continue to support firms who want to develop innovative new products.
“But crucially, no-one should be lent to if they’re unable to repay because that could worsen their financial situation. Now Parliament has given us the powers, we’re putting in place proportionate protections for the 11 million people who use it.”
The BNPL market has grown significantly in recent years, to reach over £13 billion in 2024, the FCA said.
According to its 2024 Financial Lives Survey, 20% of UK consumers, equating to 10.9 million adults, used BNPL in the 12 months to May 2024.
People who are struggling with their finances can search for guidance on dealing with debt on the Government-backed MoneyHelper website.
Firms will be able to register for the temporary permissions regime between May 15 2026 and July 1 2026. Firms will have six months from the date the regime comes into force to apply for full authorisation.
Peter Tutton, director of policy, research and public affairs at StepChange Debt Charity, said: “Buy now, pay later can be a helpful way for people to spread costs. But like any form of credit, it carries risks when repayments become difficult. The absence of FCA regulation until now has only heightened the risk of financial harm for those relying on BNPL.
“Going forward, people using BNPL products will be protected by affordability checks, consistent support from lenders and access to the Financial Ombudsman if things go wrong – these are all essential safeguards for borrowers using any type of credit.
“We would urge anyone using BNPL to always double check that the repayments will be affordable, and if you are struggling to repay, free and impartial debt advice is available from charities like StepChange.”
Rocio Concha, Which? director of policy and advocacy, said: “Buy now pay later has become a popular payment method for many consumers – especially for those managing tighter budgets.
“However, because it has so far been unregulated, consumers paying this way haven’t been made sufficiently aware of the risks attached with this form of credit, such as the late fees which may apply and the potential of getting into debt.
“Which? has campaigned for years for BNPL to be regulated and clearer information, proper affordability checks and access to redress when things go wrong should give shoppers proper protections should they choose this payment method.”
Vix Leyton, a consumer expert at banking app thinkmoney, said: “Bringing BNPL under regulation is absolutely the right move because it puts essential guardrails around a product millions rely on.”
Anne Pardoe, head of policy at Citizens Advice, said: “These protections couldn’t come soon enough.
“The growing BNPL market is driving more people to our services each year, with many struggling to repay credit they can’t afford or falling behind on essential bills.”
A spokesperson at BNPL provider Clearpay said: “We welcome regulation, which will establish a consistent operating environment and clear compliance standards for all providers.”
A Klarna spokesperson said: “These new rules will raise standards across the market.”
And a spokesperson for banking and finance body UK Finance said: “It’s right that the product is regulated and our members welcome the application of more flexible regulation through the FCA.”