Government lays secondary legislation to bring BNPL under FCA regulation

The Government laid the Financial Services and Markets Act 2000 (Regulated Activities etc.) (Amendment) Order 2025 on 19 May 2025, alongside an impact assessment signed by the responsible minister on 28 April 2025¹. The order removes the exemption that currently allows buy now pay later agreements to operate outside consumer credit regulation¹.

The impact assessment states that regulation is set to come into force twelve months and one day after the secondary legislation is made, and that a levy on firms will commence when the amended framework takes effect, expected in April 2026¹. The Government proposes to review the legislative provisions and publish a report at least every five years, with a review date of Q3 2030¹.

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. The exemption being removed is set out in article 60F(2) of the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001, and applies where an agreement is a borrower-lender supplier agreement for fixed-sum credit, has no more than 12 payments, requires those payments within 12 months or less, and is provided without interest or charges¹.

The assessment cites FCA data that around 14 million UK adults used BNPL products in the six months to January 2023, 27 per cent of UK adults, with an average outstanding balance of £236 for a current user¹. It says 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. It also cites the FCA Financial Lives 2022 survey finding that 44 per cent of frequent BNPL users are over-indebted, a Money and Pensions Service survey finding that 14 per cent of users had paid a late fee, and its own finding that 38 per cent of users spent more than planned because BNPL was available at checkout¹.

The Government's preferred option is to regulate BNPL products and require lenders to provide information in compliance with FCA rules rather than the Consumer Credit Act's information provisions¹. Under the proposed regime, borrowers would gain access to the Financial Ombudsman Service and key consumer rights including section 75 of the Consumer Credit Act, and firms would have to undertake affordability assessments under FCA rules¹.

The assessment estimates a net cost to business of £2.3m per year, with a total net present social value of minus £25.1m in 2024 prices¹. It estimates that ten unauthorised firms will each pay a £5,440 authorisation fee, with additional administrative costs of between £2,441.25 and £4,068.75 per firm, and that registering under the Temporary Permissions Regime will cost each firm a one-off £350¹. Annual FCA fees and levies for 20 identified firms are estimated at £8,585,697, and bringing BNPL firms under FCA supervision will result in one-off costs to the FCA of approximately £5,100,000¹. The assessment says it cannot provide precise estimates 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 January 2023, according to FCA data cited in the assessment¹. Once the regime takes effect, expected in April 2026, firms offering these agreements will need FCA authorisation and will have to carry out affordability assessments on borrowers¹. Borrowers would gain access to the Financial Ombudsman Service and statutory rights including section 75 of the Consumer Credit Act, which makes the creditor jointly and severally liable for breaches of contract or misrepresentation by suppliers in debtor-creditor-supplier agreements¹.

The assessment notes that domestic premises suppliers who introduce customers to third-party BNPL lenders will need to be authorised as credit brokers, or become an appointed representative of an authorised firm¹. It also records that 46 per cent of users used BNPL for its interest-free nature, 40 per cent to buy goods they could not afford in one go, and 30 per cent to help with budgeting¹. A survey cited in the assessment found that almost a third of BNPL users surveyed in November 2023 had borrowed from elsewhere to pay off BNPL debts in the previous 12 months¹.

What happens next

The order was laid on 19 May 2025¹. Regulation is set to come into force twelve months and one day after the legislation is made, with the levy expected to commence in April 2026¹. The FCA will conduct a cost benefit analysis on its detailed rules, which the assessment says are not yet designed¹. The Government proposes to review the provisions and publish a report at least every five years, with a review date of Q3 2030¹.

The assessment sets out the background to the policy, including the Woolard Review, the Government's February 2021 announcement of its intention to regulate unregulated BNPL products, a February 2023 consultation that closed in April 2023 with 53 responses, and an October 2024 consultation¹. It notes that legislation was not introduced before Parliament was dissolved in May 2024¹. It also records that the FCA last used its powers against BNPL firms in October 2023, having acted in August 2022 over adverts that emphasised benefits without sufficiently disclosing relevant risks¹.

For more on how the regime works, see Deferred Payment Credit: the new buy now pay later rules and Is buy now pay later regulated by the FCA?.