What does BNPL regulation mean for you?

Shoppers are to get greater protection when choosing to pay in instalments after the government announced planned regulation for buy now, pay later (BNPL) products.

BNPL lets shoppers spread the cost of purchases over three months. It has rocketed in popularity over recent years, with half of all UK adults using it to pay for shopping at some point. But financial experts, including us, have raised concerns about how BNPL is landing people in unmanageable debt.

In the past 12 months, we’ve seen a three-fold increase in people seeking debt help for BNPL. Last month (September), we helped 1,892 people with BNPL debts.

The new Labour government will now consult with financial experts until 29 November, before introducing legislation early in 2026. This will bring buy now, pay later companies in line with other credit providers, meaning they’ll be supervised by the Financial Conduct Authority (FCA). They’ll also fall under the Consumer Credit Act, so shoppers must be given clear information and have better support if problems occur.

Our director of external relations, Sebrina McCullough, said:

“We welcome the government’s action to regulate the BNPL sector. The introduction of thorough affordability checks and essential consumer protections is a critical step that’s long overdue.

“Over the past year, we’ve witnessed a threefold rise in individuals seeking help with overwhelming BNPL debts, many of whom are vulnerable.

“We urge BNPL providers to collaborate swiftly with the FCA to implement these changes, ideally ahead of the proposed 2026 timeline.” 

Why is regulation needed?

Currently, BNPL users miss out on many essential protections offered by other credit products, such as credit cards and loans. The previous government announced plans to regulate BNPL products in 2021 and published the results of its consultation in February 2023. But these plans never moved forward, so the new Labour government has launched its own consultation.

Major BNPL players, including Klarna, Zilch and Clearpay have warned that overly strict regulations might undermine their short-term credit services in the UK. While some worry that BNPL businesses could leave the UK if the rules are too harsh.

Labour aims to strengthen regulations with ‘affordability assessments’ to protect vulnerable consumers and clearer information about BNPL products.

The UK has fallen behind the EU and countries such as Australia that have already moved forward with plans to regulate BNPL.

How popular is BNPL?

According to Equifax data, BNPL is increasingly becoming part of everyday financial choices for UK shoppers. Delays in regulation could lead to more people facing unmanageable debt. If current trends continue, we’ll be helping around 3,000 people a month with BNPL debts by this time next year.

While BNPL is often used for larger purchases like fashion (41%) and electronics (32%), more shoppers (12-13%) are now using it for everyday essentials, including groceries and takeaways.

Young adults (aged 18-34) and higher-income households (£60k-£90k) use it the most, with 55% of younger shoppers having tried BNPL at least once. And nearly half (48%) of BNPL users have missed at least one payment, which can lead to additional fees and debts being passed over to credit collection services.

What's set to change?

The current lack of regulation means BNPL providers don’t need to gain FCA authorisation or follow the rules set out in the Consumer Credit Act. This has encouraged more and more providers to enter the market.

But this rapid expansion has raised concerns, especially around the lack of credit checks. The new BNPL rules aim to make BNPL lenders act more responsibly and protect consumers from the dangers of taking on too much credit.

The new regulations will focus on BNPL products offered by third-party lenders. Shops that offer BNPL directly to shoppers will be exempt from the changes to ease the burden on small businesses.

The providers will have to follow the FCA’s rules around creditworthiness and the reporting of BNPL to credit reference agencies. This means shoppers could face stricter credit checks and affordability assessments to safeguard them against running up excessive debt. Shoppers will also have access to the Financial Ombudsman Service if they have a problem.