The Financial Conduct Authority has begun regulating third-party buy now, pay later lending, introducing affordability assessments, clearer customer information and new routes for complaints and redress.
The rules took effect today (15 July 2026) and apply to deferred payment credit provided by a business other than the retailer supplying the goods or services. The change moves a widely used retail payment option into the regulated consumer-credit system while leaving merchants largely outside the direct authorisation requirement.
A Regulated Credit Journey
Deferred payment credit is the regulatory term for interest-free credit repayable in no more than 12 instalments over a period of 12 months or less.
Lenders offering these agreements must now hold the appropriate Financial Conduct Authority authorisation or temporary permission. They must also comply with rules covering responsible lending, customer communications and support for borrowers experiencing financial difficulty.
Before entering an agreement, customers must receive information including the amount being borrowed, the value and timing of repayments, applicable late fees and the rights and protections attached to the agreement.
Lenders must carry out proportionate affordability assessments before providing the credit. The precise assessment can vary according to the product and the customer’s circumstances, but the FCA’s stated objective is to prevent borrowing that customers cannot sustainably repay.
The change follows substantial growth in the market. The FCA’s deferred payment credit policy statement reports that lending increased from £60 million in 2017 to more than £13 billion in 2024. Its Financial Lives Survey found that approximately 10.9 million UK adults used BNPL during the 12 months to May 2024.
Retailers Remain Exempt From Credit Broking
The new regime regulates the third-party lender rather than making every participating retailer a regulated credit broker. The broking of deferred payment credit remains exempt, while instalment arrangements provided directly by a retailer to its own customers also sit outside this particular regime.
The distinction means most merchants will not require new consumer-credit authorisation simply because a third-party BNPL option appears at checkout.
However, the customer journey, product wording and promotional materials connected with those services may change. Retailers should confirm that their provider is authorised or holds temporary permission and ensure that the latest approved messaging is being used across product pages, checkout screens, apps, emails and in-store material.
Agreements entered into before 15 July 2026 remain outside the new regime. The protections described in the FCA’s consumer guidance on regulated BNPL apply to qualifying agreements made from regulation day onwards.
Providers Update Checkout Information
The operational effect will vary between providers and integrations.
PayPal has told merchant customers that the regulatory impact will be limited in most cases because it is responsible for compliance as the lender. Its dynamic Pay in 3 messaging is being updated automatically, while merchants using their own pre-approved PayPal material have been instructed to remove references describing the product as unregulated credit.
PayPal has also indicated in its BNPL regulation guidance for merchants that businesses may see changes to messaging and customer flows. This reflects the additional information and affordability processes that lenders must now incorporate into the journey.
Clearpay, which is operating under the temporary permissions regime, says its plans became regulated credit agreements under the Consumer Credit Act on 15 July. It has retained its interest-free four-instalment format, but customers now receive additional protections and may undergo soft credit checks or be asked to confirm information such as income and expenditure.
The provider’s updated UK regulation guidance says the overall Clearpay experience remains largely the same. The example nevertheless underlines why retailers should review each individual provider rather than assume that every BNPL integration will respond identically.
Checkout Testing Becomes More Important
For ecommerce teams, the immediate task is to test the complete customer journey rather than only checking whether the payment button remains visible.
Additional information or eligibility steps may alter the time required to complete a purchase, the position at which a customer leaves the retailer’s website and the messages displayed when an application is declined. Retailers will need to understand these points when analysing conversion, abandonment and payment-method performance.
Marketing teams should also avoid creating new claims about convenience, approval or affordability without using material approved by the lender. BNPL is now more explicitly presented as a credit agreement rather than simply another way to pay.
Customer-service teams may require clearer processes for distinguishing between retail enquiries and lending complaints. Questions about repayments, affordability decisions and financial difficulty should normally be handled by the lender, while the merchant remains responsible for the underlying sale, delivery and returns process.
Complaints And Refunds
Customers entering regulated agreements can complain to their lender and subsequently take an eligible unresolved complaint to the Financial Ombudsman Service.
The Ombudsman expects complaints to include questions about affordability, whether customers understood their agreements and disputes concerning the quality of purchased goods. Its guidance on BNPL complaints says it anticipates receiving around 2,000 cases during the current financial year.
Eligible purchases may also receive protection through Section 75 of the Consumer Credit Act. This can allow a customer to pursue the lender when goods or services are misrepresented, faulty or not supplied, although eligibility depends on the purchase and the structure of the transaction.
The additional route of redress makes coordination between retailer returns systems and lender payment records increasingly important. Delayed refunds, unclear cancellation processes or mismatched transaction information could create problems extending beyond the original retail complaint.
The regulation does not remove BNPL from the checkout. It changes the context in which it is presented and operated, placing clearer responsibility on lenders while making accurate messaging, tested customer journeys and coordinated after-sales service more important for their retail partners.
