Buy now, pay later and the FCA: preparing for regulation

In February, the Financial Conduct Authority (FCA) has published its final rules on regulation of deferred payment credit (DPC) which will bring UK buy now, pay later (BNPL) lenders into the FCA regulatory perimeter from 15 July 2026.

The FCA’s new regime impacting the BNPL market, and what the regulator refers to as DPC, is focused on those interest-free instalment credit offerings that firms provide which allow consumers to split the cost of their purchase into 12 or fewer regular payments within a 12 month period, which are not currently regulated. In this article, we outline the key elements of the FCA’s new DPC regime and highlight what's changing.

What’s changing?

Regulatory change has been on the horizon for some time due to the significant growth in BNPL offerings and level of consumers using these currently unregulated products – the FCA’s Financial Lives Survey 2024 noted the market had grown from c.£0.06bn in 2017 to over £13bn in 2024, with c.20% of UK consumers using a BNPL product in the 12 months leading up to May 2024.

BNPL provides an important source of credit for many. The FCA’s new rules mean that consumers using BNPL will benefit from stronger protections. BNPL will be subject to the FCA’s Consumer Duty and consumers can expect to receive clearer information, be subject to affordability checks, receive support and have clearer processes for complaints and compensation.

Who’s in scope?

Under the FCA’s new regime, DPC agreements are subject to regulation if the lender and supplier of goods or services are different businesses, for example a BNPL firm providing credit to a consumer would be in scope, the retailer providing the goods would not. In these scenarios the lender would require regulation, retailers, suppliers and brokers of these agreements would not.

Equally, if a lender and retailer are the same business this would not amount to a regulated arrangement, for example if a consumer buys goods using a retailer’s own DPC offering. Additionally, DPC agreements entered into before 15 July 2026 would remain unregulated too.

Key focus areas?

• Authorisation: lenders must be FCA authorised to provide BNPL services, firms can register for the six month temporary permission regime between 15 May 2026 – 1 July 2026. This is available to firms that where carrying on activities on 15 July 2025, that will fall in scope of regulation, have notified the FCA of this and paid the relevant fee. Firms would then have a six month period from 15 July 2026 to apply for full FCA authorisation.
• FCA rules: lenders will be subject to most rules and guidance in the FCA’s Consumer Credit Sourcebook, with certain additions specific to DPC offerings, as well as requirements of the Consumer Duty.
• Affordability checks: lenders will need to carry on proportionate affordability assessments to make sure borrowers can afford to repay what they are to borrow before a BNPL product is offered, this will generally applying to DPC agreements of any value and might consider lending data and credit history of a consumer.
• Information disclosure: consumers must be provided clear, upfront information about their agreement, including when payments are due, amounts and what happens if payments are missed. The FCA’s final rules made certain changes to level of key information required to be disclosed, following industry feedback.
• Complaint handling: lenders will be subject to more prescriptive complaints handling rules, as per the FCA’s dispute resolution part of the handbook, and consumer will also have right recourse to the Financial Ombudsman Service in relation to DPC agreements if unsatisfied with a lender’s handling of matters, which may lead to redress.

What should firms be considering?

There’s a lot to think about – for lenders providing credit and entering into DPC agreements, and retailers in the distribution channel connecting the consumer with the lender – for example:

• Lenders will need to prepare for FCA temporary permission regime registration if in scope and carefully determine authorisation strategy, creating required materials,  and ensuring they present as ‘ready, willing and organised’ for FCA authorisation.
• Lenders will also need to review the latest FCA rules and conduct careful gap analysis to determine how new requirements align with current models and address key changes with those retailers, suppliers and brokers it works with to provide DPC to consumers.
• Linked to the above, lenders will also need to manage Consumer Duty implementation, ensuring good outcomes are embedded into offerings and borrower experience.
• Changes to consumer journeys will be needed to effectively manage change related to affordability assessment, information disclosure requirements and communications as part of DPC distribution. Retailers and suppliers should review checkout journeys, refund processes and consider contractual arrangements with consumers and with lenders.

A new era for responsible BNPL lending?

Under the FCA’s supervision, it’s clear the BNPL sector can thrive. Regulation through the DPC regime is the needed opportunity to ensure better consumer outcomes, protections and experience, whilst strengthening governance and accountability for lenders offering these products. A well designed regime can support continued growth of the BNPL market.

For further information, please contact our fintech and financial services regulatory teams.