New ‘buy now, pay later’ affordability checks may cover even smallest loans under FCA proposals

The Financial Conduct Authority (FCA) has unveiled long-awaited plans to regulate the booming £13 billion ‘buy now, pay later’ (BNPL) sector — with proposals that could require affordability checks on even the smallest of loans.

Under the new rules, which form part of a formal consultation launched on Friday, BNPL lenders would need to conduct creditworthiness assessments on loans under £50 — a measure the regulator says is necessary to protect consumers from spiralling debt and financial harm.

The FCA said BNPL has evolved from a fringe product into a mainstream payment method, used by 10.9 million UK adults in the 12 months to May 2024. Around 1.1 million of these individuals had BNPL debts of £500 or more, while more than 5 million owed at least £50. Over half of all BNPL agreements currently involve loans under £50, which the FCA argues must be included in the scope of new rules to prevent widespread harm and “loan stacking” across multiple providers.

The proposals mark a significant shift in how short-term credit is treated, with firms like Klarna, Clearpay and Laybuy among the major lenders expected to come under the new regime.

Sarah Pritchard, the FCA’s deputy chief executive, said the regulator had been seeking oversight of the sector for some time amid concerns about its explosive growth.

“BNPL can offer flexibility, but our job is to ensure consumers are properly protected. People can benefit from BNPL while being protected,” she said.

The market has expanded rapidly from £60 million in 2017 to over £13 billion in 2024, often promoted at online checkouts to help customers spread the cost of purchases without interest. But critics have warned the ease of access can mask potential dangers for younger or financially vulnerable consumers.

BNPL is particularly popular among 25–34 year-olds, many of whom live in some of the UK’s most economically deprived areas. The FCA’s move is designed to ensure that those at greatest risk are not exposed to excessive borrowing without proper safeguards.

The new regime, due to take effect from 15 July 2026, will require BNPL lenders to become FCA-authorised. Once live, firms will have six months to register for authorisation or face losing the ability to lend.

Consumer groups have welcomed the proposals. Vikki Brownridge, chief executive of debt charity StepChange, said the regulation was long overdue.

“BNPL is now as common as using an overdraft. While it can be useful, it can also deepen financial difficulties. Struggling consumers must have the same protections as with any other form of credit,” she said.

The proposals also include mandatory support for customers experiencing financial hardship, along with the right to refer complaints to the Financial Ombudsman Service.

The FCA’s consultation is open until 26 September 2025, giving BNPL providers, consumer advocacy groups and industry stakeholders time to respond. The regulator is expected to publish its final rules early next year.

With the BNPL sector now firmly entrenched in the UK’s consumer finance landscape, the FCA’s intervention could mark a turning point — transforming a once lightly regulated payment method into a core part of the UK’s credit framework.

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New ‘buy now, pay later’ affordability checks may cover even smallest loans under FCA proposals