The Financial Conduct Authority (FCA) published a consultation paper on 18 July 2025 entitled “Deferred Payment Credit (unregulated Buy Now Pay Later): Proposed approach to regulation” (CP25/23). This initiative is set to revolutionise the Buy Now Pay Later (BNPL) market, now referred to as Deferred Payment Credit (DPC). The FCA’s proposed rules and guidance aim to protect consumers while fostering innovation and growth within the industry.
Why This Matters
The BNPL market has seen explosive growth, offering consumers a flexible and convenient way to manage their finances. However, with this growth comes the need for robust regulations to ensure that consumers are protected and informed. The FCA’s consultation paper is a significant step towards achieving this balance.
What is the FCA Proposing?
- Empowering Consumers with Information – The FCA is committed to ensuring that consumers have all the information they need to make informed decisions about DPC products. This includes clear and concise information about the terms and conditions, fees, and potential risks associated with DPC products. By providing this information upfront, consumers can more confidently navigate their financial choices.
- Ensuring Affordability – Affordability is at the heart of the FCA’s proposals. Firms will be required to conduct proportionate affordability assessments to ensure that lending is both affordable and sustainable and does not harm consumers’ financial wellbeing. This means evaluating borrowers’ income, expenditure, and overall financial situation to ensure they can comfortably manage repayments – not just at the point of sale – but over the lifetime of the loan. Our recently published Sustainable Lending White paper provides tangible insights and strategies for assessing and demonstrating affordable and sustainable lending.
- Consumer Duty- The FCA’s Consumer Duty sets high expectations for the protection of retail customers and this will extend to firms offering DPC products. Firms will be required to act in the best interests of their customers, providing products and services that meet their needs and ensuring they understand the risks and benefits of DPC products. This commitment to high standards will help build trust and confidence in the BNPL market.
- Resolving Disputes Fairly – Under the new proposals, consumers will have access to the Financial Ombudsman Service for independent and impartial dispute resolution. This provides an independent and impartial mechanism for resolving disputes between customers and firms, ensuring that customers have access to fair and effective redress.
- Data-Driven Insights – The FCA is calling for better and more up-to-date information about the DPC sector. Regular reporting by firms on their activities, customer demographics, and product performance will help the FCA monitor the market and identify emerging risks. This data-driven approach will enable proactive regulatory action to protect consumers. And in accordance with PRIN 2A.9 of the FCA Handbook, firms will also need to regularly monitor the outcomes retail customers receive from the products the firm manufactures or distributes including the price customers pay, the communications it has with those customers and the ongoing support they provide.
- Seamless Transition to Authorisation – To ensure a smooth transition, the FCA proposes a Temporary Permissions Regime while firms apply for authorisation. This allows firms to continue offering DPC products while they go through the authorisation process, ensuring that there is no disruption to customers. Firms will need to demonstrate that they meet the FCA’s standards for authorisation, including having appropriate systems and controls in place.
Next Steps
The FCA is inviting responses to this consultation paper by 26 September 2025. Stakeholders, including firms, consumer groups, and other interested parties, are encouraged to provide their feedback on the proposed rules and guidance. The FCA will consider the responses and make any necessary revisions before finalising the regulations.
What Should Firms Do Now?
To stay ahead of the curve, DPC firms should take the following proactive steps to prepare for upcoming regulation:
- Review and Update Information Disclosure Practices: Firms should review their existing suite of customer communications to ensure they provide clear, concise, and comprehensive information to customers about DPC products. This includes details on terms and conditions, fees, and potential risks.
- Implement Robust Affordability Assessments: Firms will need to establish or enhance their affordability assessment processes to ensure that lending is affordable and sustainable. This involves evaluating the borrower’s income, expenditure, and overall financial situation. Firms should develop proportionate approach, utilising and validating customer disclosures through the effective use of technology.
- Align with Consumer Duty and the Consumer Credit Rules : Firms should familiarise themselves with the FCA’s Consumer Duty and existing Consumer Credit (CONC) rules. They should ensure that their practices align with these standards, which include taking reasonable steps to avoid foreseeable harm, providing products that meet customer needs, and ensuring customers understand the risks and benefits of DPC products.
- Establish Dispute Resolution Mechanisms: Firms should set up or enhance their internal complaint handling processes and be prepared to refer unresolved complaints to the Financial Ombudsman Service.
- Enhance Data Reporting Capabilities: Firms should develop systems to collect, analyse, and report data on their DPC activities, customer demographics, and product performance. This data will be crucial for the FCA to monitor the market and identify emerging risks. This includes developing a robust monitoring and testing approach to the identification and mitigation of customer harm and the delivery of good customer outcomes.
- Prepare for Authorisation: Firms should begin preparing for the FCA’s authorisation process by reviewing their systems, controls, and compliance frameworks. They should ensure that they meet the FCA’s standards for authorisation and be ready to apply for the relevant permissions. The temporary permissions regime will allow firms to continue offering DPC products while they go through the authorisation process.
- Engage with the Consultation Process: Firms should actively engage with the FCA’s consultation process by reviewing the consultation paper and providing feedback. This is an opportunity for firms to share their views on the proposed regulations and influence the final rules. Firms should submit their responses to the FCA by the deadline of 26 September 2025.
By embracing these changes, DPC firms can not only comply with the proposed regulations but also build stronger relationships with their customers, fostering trust and loyalty in the rapidly evolving BNPL market. The future of Buy Now Pay Later is bright, and with the FCA’s proposed regulation of the market, it promises to be both innovative and secure.
If you would like to discuss any aspect of the FCA’s proposed regulation of the Buy Now Pay Later market, or any other conduct-related matter, please contact us as: hello@square4.com
Darren Fisher
Senior Advisory Director
