Lenders may have to carry out affordability checks on even the smallest buy now, pay later loans under new rules drawn up by the City watchdog.
The Financial Conduct Authority (FCA)on Friday published details of its plan to regulate the £13bn buy now, pay later (BNPL) market.
The proposals include requiring firms to offer support to customers in financial difficulty. Borrowers will also be able to complain to the financial ombudsman service if something goes wrong.
Sarah Pritchard, the FCA’s deputy chief executive, said the regulator had wanted to police the sector for some time, amid rapid growth in demand for this type of loan.
According to the regulator, BNPL lending has grown from £60m in 2017 to more than £13bn in 2024. Now “people can benefit from BNPL while being protected”, said Pritchard.
The loans are a way to spread the cost of purchases without paying interest, with the payment option, offered by lenders such as Klarna and Clearpay, regularly popping up at online checkouts.
But concerns have been raised that some people could end up taking out loans that they cannot afford to pay back on time, incurring charges. The biggest users of BNPL are adults aged 25-34, with the cohort also skewed to those living in the most deprived areas of the UK.
The FCA said BNPL, although unregulated, had entered the mainstream as 10.9 million UK adults had used it at least once in the 12 months to May 2024. Of this group, 1.1 million had a debt of £500 or more outstanding, and 5.3 million owed £50 or more.
The FCA intends to make BNPL loans of under £50 subject to new creditworthiness checks. Just over half of these loan agreements involve advances below £50, so ignoring them could leave “borrowers exposed to harm”, it said. Without this scrutiny there is also a risk that “loan stacking” – taking out loans from multiple providers – would not be covered by regulation.
Vikki Brownridge, the chief executive of the debt charity StepChange, said that as BNPL was now “as common as using an overdraft” among UK adults, it required “proper” regulation.
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“Whilst BNPL can be a useful budgeting tool, it can deepen debt problems, and it is important struggling consumers are afforded the same level of protection as for other forms of credit,” she said.
Like the financial firms who offer mortgages and secured loans, BNPL lenders will have to become FCA-authorised. They have six months to apply from when the regime comes into force on 15 July 2026.
The proposals are set out in a consultation document, and BNPL lenders and consumer groups have until 26 September to respond.