As Buy Now, Pay Later (BNPL) products become a mainstream credit option, the UK government is taking steps to bring them under regulatory oversight. The Government ran a six-week consultation between 17th October and 29th November 2024 on proposals for bringing currently unregulated Buy Now, Pay Later (BNPL) products into regulation. This outlined plans to adapt outdated Consumer Credit Act (CCA) requirements to better suit the digital-first, short-term nature of BNPL agreements, with consumer protection at the forefront of their considerations.
Below, we break down the key proposals, concerns raised by stakeholders, and what’s next for consumers, firms, and merchants following the Government Response to this Consultation on 19th May 2025.
CCA and its suitability for BNPL
The consensus among respondents is clear that traditional disclosure requirements under the Consumer Credit Act (CCA) are not well suited to BNPL products. Provisions such as annual statements designed for long-term credit agreements offer limited value for short-term, interest-free instalments. In response, the government proposes disapplying certain CCA requirements, including annual statements and paper arrears notices.
Respondents emphasised the importance of replacing these with clear, concise, and relevant information, ideally delivered in digital formats, to promote responsible borrowing and support customers’ financial wellbeing.
However, removing CCA provisions carries potential risks. Some requirements, such as unenforceability of agreements in the event of a breach, offer strong consumer protections. Recognising this, the government plans to retain rules that safeguard vulnerable customers and/or promote responsible conduct, such as Time Orders and Section 86 (Debt of a Debtor). Meanwhile, Distance Marketing Regulations will continue to apply and are scheduled for review as part of Phase 2 of the broader CCA reform.
The government maintains that FCA oversight of BNPL products will provide a robust alternative framework for consumer protection.
Communication: Clear, Digital, and Supportive
There was strong support for moving away from paper-based arrears communication, which many view as outdated and intimidating. Firms and consumer groups agree that overly prescriptive CCA notices may deter customers in financial difficulty from seeking help. Respondents suggested digital statements to enhance transparency, account modification options to reflect a borrower’s changing financial circumstances and plain language disclosures especially in regard to early repayment rights.
Vulnerable Customers
One key challenge is ensuring the regulatory framework doesn’t unintentionally exclude certain borrowers, particularly those with protected characteristics or limited credit history. Mandatory creditworthiness assessments, while important for risk mitigation, may restrict access for some customers.
The government stresses its intention to strike a balance between ensuring BNPL remains inclusive while improving safeguards and firm conduct.
Credit Brokering and Merchant Responsibilities
The popularity of BNPL has led to a wide range of businesses, not just financial firms, offering it as a payment option. The draft legislation proposes exempting most merchants from needing credit broking permissions, apart from domestic premise suppliers (such as in-home salespeople). There is commitment, however to understanding, with the help of key stakeholders, whether domestic premise suppliers should also be exempt.
To maintain oversight, all BNPL-related promotions must be approved by an FCA-authorised person.
Next Steps for Regulation
To tailor BNPL regulation more effectively, the FCA will develop and consult on bespoke rules for the sector. A Temporary Permissions Regime (TPR) will be legislated for BNPL lending, this will enable firms that are not yet authorised to carry out consumer credit lending or credit broking activities to continue their BNPL activities while their application for full authorisation is being reviewed. Firms will need to demonstrate how they are meeting the standards of the Consumer Duty as part of their application.
The government proposes to exempt BNPL firms under the TPR from the Senior Managers & Certification Regime (SM&CR), although they will remain under close FCA supervision.
The FCA’s Consumer Duty establishes high and clear expectations for the protection of retail customers across financial services. This Duty increasingly emphasises behaviours and cultures, with the FCA adopting a more proactive and transparent approach to evaluating the overall value firms deliver to customers. This includes a greater focus on product governance, pricing, communications, ongoing support, data, and other factors that underpin a competitive marketplace.
As BNPL products fall under regulation, BNPL firms will need to ensure that they have considered this and how it applies to their business model. In accordance with PRIN 2A.9 of the FCA Handbook, firms must 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.
Outcome 1 – Products and Services
For BNPL firms the emphasis will be to ensure product approval processes are aligned, the target market is understood at a granular level and that characteristics of customers (for example, vulnerability) are factored into product design and testing. Firms will need to remove behavioural biases (identifying groups of customers for whom the product may not be suitable) and certain practices (e.g. sludge practices, which provide excessive or too little friction and hinder consumers from taking actions and decisions in their own interest).
Firms should ultimately be able to evidence a suite of management information to show that the product or service is performing as expected within the target market and to evidence the impact it is having on consumers.
Outcome 2 – Price and Value
BNPL firms will need to perform a fair value assessment of the product. This will need to identify the benefits that the product provides to customers, the costs customers may be charged across the lifecycle of the product and an assessment as to whether the relationship between benefit and cost of the product represents fair value for the customer.
Firms should consider planning and look at the read-across from other sectors which have already been impacted, to form an early view on value and pricing within individual product areas. Firms ultimately need to be confident that the pricing of products and services are appropriate and represent fair value.
Outcome 3 – Consumer Understanding
With more and more customer journeys originating and taking place online, it is imperative that BNPL firms consider how they evidence that customer communications and disclosures ensure and facilitate consumer understanding, this is particularly important as many BNPL interactions are as part of or wholly online journeys and use insight to support customer interactions.
With data becoming ubiquitous and much more emphasis being placed by firms on new customer origination and targeting through data, BNPL firms will need to place some of that emphasis on using data to support new and existing customers to receive a good outcome as part of the product lifecycle.
Outcome 4 – Consumer Support
The FCA has been clear with firms that organisations should meet consumer’s needs, not just at the outset, but throughout the customer journey. This will require firms to consider its processes end-to-end across the product lifecycle including training, call waiting times, customer complaints, customers that require forbearance. BNPL firms will need to have sufficient processes in place to provide adequate customer support, including for customers that present characteristics of vulnerability.
Outcomes Monitoring
The FCA’s rules in PRIN 2A.9 require firms to assess, test and evidence the outcomes their customers are receiving, based on their individual circumstances at every stage of the customer journey. This means firms must identify where they are not meeting the cross-cutting obligations and consequently not acting to deliver good outcomes for customers.
By prioritising outcomes monitoring, firms can meet regulatory requirements whilst enhancing transparency, accountability, and consumer trust. Our white paper offers practical insights into tracking and assessing consumer outcomes, identifying potential risks early, and fostering continuous improvement in product and service quality. It is an essential resource for financial services firms looking to stay ahead of regulatory changes and ensure their offerings deliver consistent value to consumers.
Click the link to learn more in our latest Outcomes Monitoring White Paper.
Conclusion
As BNPL products fall under regulation, firms will need to ensure that they have considered the standards of the Consumer Duty and how it applies to their business model and customer journey. In accordance with PRIN 2A.9 of the FCA Handbook, firms must 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.
How can Square 4 help?
Firms should evaluate whether they have the appropriate regulatory and legal support, and the necessary experience to deliver on their plans.
Square 4 Partners supports firms in their readiness and ongoing compliance, whether through preparing for authorisation or strengthening existing capabilities.
If you have any questions or require guidance, please reach out to hello@square4.com. Alternatively, if you would like to speak to our BNPL experts, you can contact a member of the team below:
Roma Pearson – Senior Advisory Director
Mike Scott – Advisory Director
Erica Phelan – Consultant
