Millions of shoppers will enjoy more rights and protections from Wednesday as new rules for 'buy now, pay later' (BNPL) take effect in the UK. The government said it was delivering on its commitment to end the BNPL 'wild west'. This form of credit will now be regulated by the City watchdog, the Financial Conduct Authority (FCA).
What is BNPL and how big is it?
BNPL is a form of credit that lets people spread payments for everything from clothes, jewellery and white goods to concert tickets, flights and hotel rooms. The sector's value jumped from £60m in 2017 to more than £13bn in 2024, according to the FCA. Typically, the cost is split into three or four instalments paid off over a few weeks or months. If users keep up with repayments, they pay no interest or charges. But missed payments often incur late fees and a mark on their credit file. Three brands – Klarna, Clearpay and PayPal – dominate the UK market. The use of BNPL rose from 14% to 25% of UK adults in only a year, according to UK Finance. Young people fuelled its rise, but recently the biggest growth has been among older consumers.
Why is the government taking action?
Regulators and consumer bodies have long voiced concerns that some shoppers borrow money they cannot afford to pay back, incurring charges, getting into debt and damaging their credit score. Organisations such as Citizens Advice have reported helping 'more people than ever before' with BNPL-related problems. Until Wednesday, BNPL was not regulated in the same way as other consumer credit products.
What are the new rights and protections?
The shake-up gives people protections in line with other forms of credit such as credit cards or personal loans. BNPL lenders must now carry out an affordability check before each loan is taken out. The Treasury said this should ensure no one borrows what they cannot realistically afford to repay. Firms must provide clear, upfront information about payment due dates and consequences of missed payments. Anyone falling into financial difficulty will be directed towards debt advice and support first, rather than immediately handed to a debt collector.
BNPL users will benefit from section 75 protection on purchases above £100, giving them the right to claim against their BNPL provider and the retailer for qualifying purchases between £100 and £30,000 if something goes wrong. Many BNPL purchases involve amounts smaller than £100; Experian says the average transaction value is about £60. For transactions below £100, some firms will continue their existing support – for example, Klarna's 'buyer protection' policy. Shoppers can complain to the independent Financial Ombudsman Service if they have problems such as incorrect black marks on their credit file or mis-sold BNPL, said Martin Lewis, founder of MoneySavingExpert.com.
Are there downsides?
Fair4All Finance, a not-for-profit organisation working to increase financial inclusion, claims that up to 30% of current BNPL users could be rejected under the new affordability checks, and that nearly half of those likely to be turned down have never missed a payment. Its chief executive, Kate Pender, said 'there's a real risk that many people who currently use BNPL responsibly could be unfairly excluded', and that some could be pushed towards alternatives including illegal money lenders. Ben Player, a partner at law firm TLT, said larger BNPL providers and those already FCA-authorised would be better placed to absorb the compliance burden, while smaller players may struggle with cost and complexity, 'prompting consolidation… or even exits'. Others claim the sector will grow because consumers and retailers have been waiting for regulation that will now come into the market.
