Article

BNPL regulation – FCA confirms the final rules

By:

Jarred Erceg,

Darren Castle

17 Feb 20265 min read

Buy now pay later lenders will be subject to FCA regulation from July. Jarred Erceg and Darren Castle look at the final rules and how firms can prepare for authorisation.

Contents

The FCA recognises that buy now pay later (BNPL) lending, also known as deferred payment credit, offers a valuable service to consumers. However, lenders are not currently subject to FCA rules, and the majority of the Consumer Credit Act (CCA) doesn’t apply. With concerns over affordability and contractual information, coupled with significant market growth, the BNPL sector is moving under the FCA’s regulatory perimeter.

Building on CP25/23, published in the summer, the FCA has confirmed its final rules with key deadlines for implementation. While the changes aren’t extensive, there are a few important points to note – which will impact key processes for lenders and the information they provide to consumers.

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Changes to key information

Perhaps the biggest change in the BNPL final rules is around information requirements. As proposed in the consultation, lenders will need to highlight key information to support consumer decision making. However, the FCA has notably moved the following to the additional product information section:

details on rights to withdraw or cancel the agreement, finish payments ahead of time or complain to the financial ombudsman
an explanation of what continuous payment authority is and how it works.

The FCA has amended the approach following industry feedback that too much key information could overwhelm consumers, noting that these facts are less likely to inform decision making. Instead, the key product information section must highlight that consumers can read more on their rights under additional product information.

In line with Consumer Duty, the FCA reminds firms of their obligations regarding consumer understanding. Product information requirements are non-prescriptive in terms of format, but they should be easy to read and with clarity over key points, such as: amount of credit; number, frequency and amount of payments; and the cash price of the goods or services.

Missed payments

The FCA has made some clarifications and minor amendments to consumer communications requirements following a missed payment. Firms must get in touch with consumers as soon as possible, but the lender does not need to notify a guarantor (if applicable).

Lenders must provide adequate information on adverse consequences due to a missed payment and any additional consequences the firm believes could be likely. Firms are not expected to list every potential adverse consequence.

Before terminating (or enforcing terms of) an agreement, BNPL lenders must signpost free and impartial money guidance and debt advice to support good consumer outcomes.

Creditworthiness

The FCA will apply the creditworthiness rules as stated in CONC 5.2A to BNPL lenders, including for values under £50. It reiterates that these non-prescriptive rules offer firms greater flexibility, allowing firms to apply their own judgement to assess whether there’s a material affordability risk. Key considerations may include credit history, lending data or use of headroom across credit lines, among others.

For many consumer credit lenders that fell under FCA regulation from 2014, implementing an approach to affordability checks that met the regulator’s expectations was to be a significant challenge. This led to widespread remediation programmes, which in some instances forced lenders to exit the market. High volumes of complaints followed, and are ongoing, with complaint management activity targeting various different lending products across the market. Getting affordability checks right will be essential for both BNPL lenders and their customers.

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Complaints handling and dispute management

The FCA has confirmed that the Financial Ombudsman Service’s (FOS) compulsory jurisdiction will be extended to BNPL activities. However, in a change to the proposed rules, it won’t extend the voluntary jurisdiction as the FOS expects few instances where it would apply.

In keeping with the initial consultation, and to maintain proportionality, firms in the temporary permissions regime (TPR) don’t need to report on complaints until they’re fully authorised. However, these must be included in the first complaints return post-authorisation.

As consulted on, the FCA is not extending the Financial Services Compensation Scheme, as it would be of limited benefit to BNPL customers.

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Next steps

The FCA has confirmed that the TPR for BNPL will start on 15 July 2026, known as Regulation Day, and will run for six months. The window for registration will be open from 15 May 2026 to 1 July 2026. Any agreements taken out prior to regulation day will remain unregulated. As such, firms that don’t enter the TPR can continue to service pre-existing agreements, but they can’t initiate any new ones.

To get started, BNPL lenders seeking UK authorisation should:

carry out a gap analysis of current practices and FCA expectations
update current governance and oversight processes
review data collection, management information and reporting procedures
design and implement key control frameworks to support FCA requirements and embed Consumer Duty.

For further information, contact Jarred Erceg and Darren Castle.