Consultation launched on a regulatory regime for BNPL applying the CCA's provisions

The government has published an impact assessment for the Financial Services and Markets Act 2000 (Regulated Activities etc.) (Amendment) Order 2025, which would bring currently unregulated buy now pay later (BNPL) products within the Financial Conduct Authority's remit¹. The impact assessment is dated 19 May 2025 and was signed by the responsible minister on 28 April 2025¹. Regulation is set to come into force twelve months and one day after the secondary legislation is made¹.

BNPL is described in the assessment as interest-free instalment credit allowing borrowers to divide the cost of purchases into regular payments over a period not exceeding 12 months¹. Such agreements are currently exempt from consumer credit regulation under article 60F(2) of the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001, where the agreement is a borrower-lender supplier agreement for fixed-sum credit, the number of payments is not more than 12, payments are made within 12 months or less, and the credit is provided without interest or charges¹. Firms offering only these agreements do not need to be authorised or regulated by the FCA and are not under the jurisdiction of the Financial Ombudsman Service¹.

According to FCA data cited in the assessment, around 14 million UK adults used BNPL products in the six months to 2023, equivalent to around 14 million consumers or 27% of UK adults in the six months to January 2023¹. In that period the average outstanding balance of a current BNPL user was £236¹. The total value of BNPL transactions rose from £6.4bn in the 12 months to March 2022 to at least £9.6bn in the 12 months to March 2023¹. The assessment also cites the FCA Financial Lives 2022 survey finding that 44% of frequent BNPL users are over-indebted, a Money and Pensions Service survey finding that 14% of BNPL users had paid a late fee, and that 19% of users of fee-charging providers were unaware of the fees¹. It states that 38% of BNPL users spent more than they planned to because BNPL options were available at checkout, and that almost a third of the BNPL users surveyed in November 2023 had borrowed from elsewhere to pay off BNPL debts in the previous 12 months¹.

The assessment sets out three regulatory options considered. Option 1 was to apply almost the full provisions of the Consumer Credit Act 1974 (CCA) to BNPL products, consulted on in February 2023. Option 2, the government's preferred option, is to disapply the CCA's information requirements for BNPL agreements and replace them with FCA rules, consulted on in October 2024. Option 3 was to defer regulation to CCA reform¹. A non-regulatory option to develop a voluntary code was also considered, alongside a "Do Nothing" option¹. The February 2023 consultation closed in April 2023, receiving 53 responses¹. Legislation was not introduced before Parliament was dissolved in May 2024¹.

Under the preferred option, lenders would come under FCA supervision and must follow its rules on affordability assessments, borrowers would have access to the Financial Ombudsman Service, and key consumer rights under the consumer credit regime such as section 75 of the CCA would apply¹. The assessment estimates total net present social value of -£25.1m in 2024 prices, a business net present value of -£20.1m, and a net cost to business per year of £2.3m¹. Ten unauthorised firms would need to pay a £5,440 fee each to the FCA for authorisation, with additional administrative costs estimated between £2,441.25 and £4,068.75 per firm, and registering under the Temporary Permissions Regime would cost each firm a one-off fee of £350¹. Annual FCA fees and levies for the 20 identified firms are estimated at £8,585,697¹. The assessment states that the government cannot provide precise estimates for the value of benefits given data limitations and uncertainty around FCA rules¹.

Why it matters for households

Around 14 million UK adults used BNPL in the six months to 2023, according to FCA data cited in the assessment¹. If the regime takes effect as planned, users of buy now pay later providers such as Klarna, Clearpay and PayPal would gain protections that currently apply to regulated credit, including access to the Financial Ombudsman Service and section 75 rights, and firms would have to carry out affordability assessments¹. The assessment notes that 46% of users used BNPL for its interest-free nature, 40% to buy goods they could not afford in one go, and 30% to help with budgeting¹. It also states that in 2021 over 20,000 merchants offered BNPL at checkout, a figure the government believes has at least doubled as of November 2024¹. Domestic premises suppliers who introduce customers to third-party BNPL lenders would need to be authorised as credit brokers or become an appointed representative of an authorised firm¹.

What happens next

The assessment states that regulation is set to come into force twelve months and one day after the secondary legislation is made¹. A levy will commence when the amended regulatory framework takes effect, expected in April 2026¹. The government proposes to review the legislative provisions and publish a report setting out the conclusions of the review at least every five years, with a review date of Q3 2030¹. The FCA will conduct a cost benefit analysis on its new rules, which are not yet designed¹.