Government provides final position on the new regime for regulating certain buy-now-pay-later products.
On 19 May 2025, HM Treasury published its consultation response on the regulation of certain buy-now-pay-later (BNPL) products, setting out its final position, and laid a draft statutory instrument before Parliament to effect the necessary legislative changes. This publication finally brings some certainty regarding the scope and timing of BNPL regulation.
Background
Regulation of BNPL has been a long time coming, as the previous government first announced that it planned to bring certain BNPL products into the regulatory perimeter in early 2021 in response to the Woolard Review (see this Latham blog post). Regulating BNPL was presented as a priority but, following consultations in October 2021 and February 2023 (see this Latham blog post), the previous government did not manage to finalise the process before the 2024 general election. The new government indicated that it planned to continue this initiative, and published a consultation on the proposed regime in October 2024. HM Treasury reports that respondents were generally supportive of the proposed regulatory regime and is moving ahead, intending for the new regime to apply from mid-2026.
Scope
As proposed, the changes would bring BNPL agreements offered by third-party lenders into scope of regulation (to be known as “regulated deferred payment credit agreements”), but not BNPL agreements provided directly by merchants to finance purchases of their goods. Currently, BNPL products are not exempt from regulation by design, but because they normally take advantage of the exemption in Article 60F(2) of the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001. This exempts interest-free credit agreements where the credit is repaid in up to 12 regular repayments over a maximum period of 12 months. If the government were to remove this exemption entirely, it would also bring other forms of payment in instalments into scope of regulation, which is not the policy aim.
The government maintains that third-party BNPL lenders pose the key risk and that regulation should be carefully calibrated, but it will closely monitor the merchant-provided BNPL market and respond if it sees unregulated BNPL agreements being offered at scale. The legislation also includes an anti-avoidance provision such that a lender cannot purchase the goods from the original merchant then sell them on to the customer and provide the finance in order to make use of the exemption for merchants. There are further exemptions for agreements financing insurance premiums, employee loans, and agreements offered by registered social landlords.
Requirements
Key tenets of the regime include:
- In-scope BNPL lenders will need to be authorised and regulated by the FCA. Regulated BNPL agreements, and firms offering them, will be subject to a tailored application of the CCA, plus both bespoke and general FCA rules (which the FCA is to consult on shortly).
- The FCA will design and implement a tailored information disclosure regime for BNPL products. CCA requirements, including those on pre-contractual information, form and content of agreements, and the duty to give notices, including notices of sums in arrears and default notices, will not apply. Disapplying the CCA’s information requirements will mean that the legislative (and often draconian) sanctions of the CCA for non-compliance with these requirements will not apply. The government considers that FCA rules, such as CONC and the Consumer Duty, ought to provide sufficient protection for consumers.
- The FCA will apply modified rules on affordability and creditworthiness to BNPL lending.
- Borrowers will be able to access the Financial Ombudsman Service and benefit from the protections of section 75 of the CCA, should something go wrong with their purchases.
- Most merchants will not require credit broking permissions if they only offer third-party BNPL products as payment options to their customers. Domestic premises suppliers (businesses who sell goods or services in people’s homes) will not be exempt, although the government is still considering this position.
- A temporary permissions regime (TPR) will be implemented to allow BNPL lenders to continue their BNPL activities while their application for full authorisation is being reviewed by the FCA. The legislation sets out which parts of the regulatory regime TPR firms will need to comply with pending determination of their application. One notable change is that the final legislation provides that firms in the TPR will not need to apply the Certification Regime or the Senior Managers Regime (the draft only included the latter). The FCA will set out full details of the TPR in its rules, including timings and how to register for the TPR.
- The financial promotions regime will apply to BNPL products, and unauthorised merchants will need to have their promotions of BNPL products approved by an authorised person with approver permissions. The final legislation has been amended so that BNPL providers in the TPR will be able to make their own financial promotions and approve them for onward communication by unauthorised merchants. However, TPR firms will not be able to approve unauthorised merchants’ own promotions.
Next Steps
The legislation was laid before Parliament on 19 May 2025 and must now be approved by both Houses before it is finalised. Once the legislation has been made, the FCA will have the necessary powers to make its rules for BNPL lending, and will have 12 months to consult on and finalise its rules. The regime is expected to apply from mid-2026 (12 months after the legislation’s initial commencement date).
Interestingly, the timing for regulating BNPL does not tie in with the timing for the wider reform of the CCA (see this Latham blog post). Understandably, regulating BNPL is a priority and reform of the CCA is expected to take a number of years, but it may be difficult for the FCA to calibrate its rules for the BNPL regime appropriately without being informed by where the wider CCA reforms will land. Therefore, it could be the case that the BNPL regime has to be re-examined once the CCA changes have been settled.
