UK tightens buy now pay later rules

UK regulators have begun applying a new rulebook to buy-now-pay-later lenders, requiring providers to be authorised by the Financial Conduct Authority from Wednesday, according to the BBC. The change brings BNPL closer to mainstream consumer credit: shoppers gain clearer rights to refunds and access to the Financial Ombudsman Service for unresolved complaints. The Ombudsman expects to handle about 2,000 BNPL-related cases by the end of March.

The immediate economic effect is that a frictionless checkout product becomes a credit product with gates. Under the new system, borrowers must pass an instant, automatic affordability test for each BNPL purchase, or the transaction is blocked. Campaigners and debt advisers have long argued the sector functioned like a lightly supervised add-on to retail, with late fees and rolling instalments spreading small purchases across multiple agreements. The advice service Money Wellness told the BBC it is increasingly seeing people use multiple BNPL plans for everyday spending rather than occasional big-ticket items.

Regulation shifts the costs and risks in two directions at once. Consumers who previously treated BNPL as a budgeting tool may now face hard limits, while providers must absorb compliance costs and accept formal adjudication of disputes. The BBC reports that section 75 protections — which can make the credit provider jointly liable for faulty goods over £100 — will apply, extending a credit-card-style backstop to BNPL purchases.

The harder question is what happens to the borrowers who fail the new checks. Kate Pender of Fair4All Finance told the BBC that nearly half of those likely to be rejected have not missed a BNPL payment, suggesting the screening may exclude people whose finances look fragile on paper but who have used the product without defaulting. She warned that when legal credit is denied, demand does not vanish, and some borrowers may turn to more expensive or unregulated options.

Klarna, the UK’s largest BNPL provider, disputes the idea that the rules will shut large numbers out, saying the changes largely formalise practices it already follows, including affordability checks and upfront cost disclosures, and that tighter oversight could increase trust and growth. Some retailers’ in-house BNPL products will not be covered by the new regulation, leaving a corner of the market outside the new perimeter.

BNPL began as a way to split payments at the point of sale without the stigma of a loan. From this week, it is a loan with a regulator, an ombudsman, and a failed-checkout screen that can appear just as the shopper clicks ‘buy’.