Buy now pay later providers will have to meet new standards as the sector comes under the supervision of the City regulator. It means customers taking out deals will have a new safety net from Wednesday, July 15, with the Financial Conduct Authority (FCA) overseeing these firms, which will now be subject to its regulation.
Deferred payment credit, more commonly known as buy now pay later (BNPL), is a form of short-term debt financing that allows shoppers to spread the cost of more expensive products over a set period, interest-free. The BNPL provider pays the upfront cost for the appliance, flights, or clothing, setting up a debt between them and the shopper, which must be settled over an agreed time period. The providers make money through a percentage of the transaction itself (as BNPL encourages shoppers to buy more online), late fees from those who can’t meet their payment commitments.
And the schemes may be useful for some households, allowing them to make important purchases during periods of high outgoings, they have proved controversial.
Why have concerns been raised about BNPL?
For many people, using BNPL will ease cost pressures by spreading payments into more palatable chunks. But for some it may have led to spending more than they intended to.
Some people may have also found their budget has been quickly wiped out by multiple BNPL loans.
This could also mean some people taking on debt which does incur charges, such as overdrafts, to cover the cost of the BNPL debt.
What’s changing from Wednesday?
The Government has brought the sector under the supervision of the Financial Conduct Authority (FCA) and made it subject to its regulation.
Firms will now be required to give customers clear, upfront details about their agreement, including when payments will be due, amounts, and what happens if payments are missed.
Lenders also have to carry out proportionate checks to ensure customers can afford to repay what they borrow before offering BNPL.
People may find that their BNPL use is taken into account by lenders using credit reports to make future lending decisions, with positive or a negative impact for the borrower depending on their financial behaviour.
Companies will need to offer support to customers in financial difficulty, and direct them to free debt advice where appropriate.
Some BNPL providers say they have strong protections for consumers already, and have welcomed regulation as a way of levelling the playing field.
What if I want to complain?
BNPL customers will have the option to complain to the Financial Ombudsman Service (FOS) if they want to, for example if they are unhappy with the affordability of the agreement.
The ombudsman service settles disputes between consumers and regulated financial businesses and is free for consumers to use themselves directly.
Consumers will be able to take a complaint to the service as long as the complaint is about agreements taken out on or after July 15, 2026, and the complaint relates to a regulated firm.
Customers will need to complain to their BNPL provider first and can then submit a complaint to the FOS if they are unhappy with the response.
Steps to take if you’re worried about debts
Buy now pay later may make it tempting to make additional purchases or spend more than initially budgeted for, but charity StepChange suggests pausing to consider whether you would buying the items at all if you weren’t able to get them on credit.
The charity also suggests keeping a note of payments and the terms of each loan agreement so you’re confident it works with your budget and that you will won’t have to cut back on essentials, an approach that could be particularly helpful for people with multiple debts.
People struggling with loans should contact their lender and support is also available from various organisations, including StepChange, Citizens Advice, Christians Against Poverty and the National Debtline debt advice service run by the Money Advice Trust.