New BNPL regulations require affordability checks and consumer protections

New regulations for buy now pay later (BNPL) lenders came into force today, bringing the fast-growing credit sector under the oversight of the Financial Conduct Authority (FCA). The rules require lenders to carry out affordability checks before offering credit, provide clear upfront information about repayment terms, and offer support to customers who fall into financial difficulty. Consumers will also gain the right to complain to the Financial Ombudsman and, for purchases over £100, can claim a refund from the BNPL provider if goods are faulty.

The changes follow a sharp rise in the use of BNPL schemes. The FCA estimates that almost 11 million people used some form of BNPL in the 12 months to May 2024, and the market is now worth around £13 billion. Debt advice charities have reported a growing number of people seeking help after falling behind on payments. One firm said it saw more than 4,000 people in June alone, and the proportion of its clients with at least one BNPL debt has risen from 15% to a quarter over two years.

Personal stories illustrate how easily debt can spiral. One user, Tim, said: "It makes it very easy to buy things. Very, very easy to buy things. I got to the point where I didn't even think about it anymore." Another, Paige Catlow, a young mother, described how her borrowing "got out of control very quickly" after she had a baby.

Under the new rules, lenders must check that customers can afford the repayments before offering a BNPL option. They must also give clear details about when payments are due, the amount, and what happens if a payment is missed. Providers must be approved by the FCA and are required to direct struggling customers to free debt advice.

The government welcomed the changes, saying they will "protect the consumer with proper checks before credit's offered, real rights when things go wrong and support rather than pressure if someone falls into difficulty." Major providers including Klarna and Clearpay also said they support the new rules.

However, some experts warn that the affordability checks could mean fewer people are able to access BNPL credit. Finance expert Claire Barrett noted that people with poor credit ratings who previously used BNPL as a "get-out-of-jail card" might now be refused. Some estimates suggest up to 20% of applicants could be turned away, though providers have been preparing their systems for the changes.

Debt charities have broadly welcomed the regulations, saying they should help people get professional help sooner rather than relying on BNPL to keep going. The key advice for anyone struggling is to contact their lender immediately and seek free debt advice, rather than turning to unregulated lenders.