On 11 February, the Financial Conduct Authority (FCA) published Policy Statement (PS26/1) confirming that the final rules on unregulated Buy Now Pay Later (BNPL) products (Deferred Payment Credit/DPC), will fall within the regulatory perimeter from 15 July 2026.
This marks a major shift for one of the fastest-growing areas of consumer credit, with usage now topping 11 million consumers and market volumes having surged from just £60 million in 2017 to over £13 billion in 2024.
For firms operating in retail, payments, lending, or consumer‑facing financial services, these changes bring both obligations and opportunities. Below is a comprehensive breakdown of what the new regulatory framework means and how your firm should prepare.
Why BNPL Regulation Is Arriving Now
Unregulated BNPL has expanded rapidly due to its frictionless checkout experience, interest‑free structure, and appeal to budget‑conscious consumers. However, this growth has taken place largely outside the core consumer credit regime, creating several issues the FCA now aims to address:
- Inconsistent or absent affordability checks leading to customers taking on more credit than intended
- Limited visibility of overall DPC exposure, given multiple providers and no centralised reporting
- Lack of transparency around late fees, charges, and the consequences of missed payments
- No route to redress through the Financial Ombudsman Service for disputed transactions
- High levels of repayment stress, with DPC users more likely to fall into arrears or miss essential bill payments
The regulator’s new framework is designed to impose proportionate controls without eliminating the flexibility and innovation DPC has offered consumers and retailers.
What’s changing?
From 15 July 2026, unregulated BNPL will be treated as regulated Deferred Payment Credit (DPC). The FCA’s final rules introduce five core protections.
- Mandatory affordability checks — for every transaction
Lenders must conduct proportionate affordability and creditworthiness checks each time a customer uses DPC. This applies:
- Across all purchase values (including sub‑£50 spends)
- At checkout, not just at account creation
- With consideration of the customer’s ability to sustain repayments
This is a fundamental shift from the previous model, where approvals were nearly instantaneous and often based on limited data.
- Clear, upfront disclosures prior to purchase
Before a customer enters into a DPC agreement, firms must provide:
- A clear breakdown of instalments
- Payment dates and total amounts
- Any late fees or consequences of missed payments
- Details of how changes, disputes, or refunds will be handled
The goal is to reduce frictionless impulse borrowing and ensure customers understand the nature and risks of the credit being used.
- Support for Customers in Financial Difficulty
DPC providers must behave more like regulated lenders, including:
- Proactive engagement when a customer shows signs of repayment difficulty
- Offering tailored support, such as payment plans or breathing space
- Signposting to free and impartial debt‑advice services
- Ensuring internal collections processes meet FCA conduct standards
This brings DPC into line with expectations under the Consumer Duty.
- Access to the Financial Ombudsman Service (FOS)
For the first time, DPC users will be entitled to escalate complaints to FOS. This includes disputes around:
- Misleading information
- Incorrectly applied fees
- Affordability concerns
- Poor support during financial difficulty
Providers must ensure their complaint‑handling policies meet DISP requirements and are capable of managing higher complaint volumes.
- Full FCA authorisation required
All DPC lenders must be authorised for consumer credit activities by 15 July 2026. To manage the transition:
- Firms can join the Temporary Permissions Regime (TPR) from 15 May to 1 July 2026
- The TPR allows existing firms to continue trading while their authorisation is assessed
- Firms must apply for full authorisation within six months of entering the regime
This is a significant regulatory uplift. Firms previously operating outside the perimeter must now build full governance, oversight, systems, and controls.
The Consumer Duty: Raising expectations across the sector
DPC products will fall squarely under the Consumer Duty, requiring firms to:
- Ensure Board level accountability including annual Consumer Duty reporting obligations
- Deliver good outcomes across product design, customer support, and communications
- Ensure DPC use is sustainable, suitable, and fair for the target market
- Monitor outcomes using robust data, including repayment trends, arrears, and harm indicators
- Evidence that the product provides fair value, especially where income is driven by merchant fees or late charges
The FCA has been explicit:
“No one should be lent to if they’re unable to repay.”
This represents a cultural shift for many DPC firms whose business models were designed around speed and frictionless user journeys.
Implications across the market
For Lenders and DPC providers
Regulatory expectations now include:
- Upgraded affordability models and decisioning engines
- Strengthened governance and risk frameworks
- Enhanced conduct controls and customer communications
- Comprehensive product review under Consumer Duty rules
- Evidence‑based fair value assessments
Providers who successfully adapt may gain a competitive edge through trust, resilience, and regulatory alignment.
For retailers and merchants
While most retailers will not require authorisation, the regulatory impact is significant:
- DPC‑related content becomes a regulated financial promotion, including:
- Website banners
- Checkout messaging
- Email/SMS content
- Influencer advertising
- Communications must be approved by an authorised lender
- Expect tighter integration with DPC partners for handling:
- Refunds
- Chargebacks
- Disputes
- Complaints
Retailers should also anticipate increased friction in checkout flows, potentially impacting conversion rates, particularly in lower‑value baskets.
For consumers
The regulatory changes provide:
- More transparency
- Greater protection from unmanageable debt
- Improved support during difficulty
- Fairer outcomes and access to redress
DPC will remain available and interest‑free, but under a safer and more controlled framework.
What happens next?
- 11 February 2026 — FCA published final rules in Policy Statement PS26/1
- 15 May – 1 July 2026 — Temporary Permissions Regime open
- 15 July 2026 — Regulation formally begins
- Late 2026 – Early 2027 — Full authorisation required
Firms should begin preparing now, given the scale of the uplift in systems, controls, and oversight.
How can Square 4 help?
Whether you are a lender, intermediary, or retailer partnering with DPC providers, we can assist with:
- Assessing impacts on your business model and customer journeys
- Reviewing financial promotions and consumer‑facing content
- Preparing for authorisation (including application for authorisation and a full Regulatory Business Plan) including defining supporting regulatory controls
- Updating policies, procedures, affordability frameworks, and governance
If you’d like a deeper discussion about what the new DPC rules mean for your business – or support in preparing for implementation including applications for authorisation, please contact us at hello@square4.com
Darren Fisher – Senior Advisory Director
