FCA Outlines Rationale for Stronger Buy Now Pay Later Protections

The UK Financial Conduct Authority (FCA) has highlighted the rationale behind introducing stronger consumer protections across the Buy Now Pay Later (BNPL) sector. While acknowledging that BNPL offers consumers flexibility to spread purchase costs and manage cash flow, the regulator emphasized that borrowing through these products must be accompanied by appropriate safeguards. Under the regulatory framework, BNPL users will receive clearer pre-contract information, proportionate affordability assessments, and access to assistance if they encounter repayment difficulties. Borrowers will also gain the right to escalate complaints to the Financial Ombudsman Service (FOS) and, in certain circumstances, claim refunds from lenders under Section 75 of the Consumer Credit Act. The FCA explained that rather than establishing an entirely separate regime, the new rules build on existing consumer credit standards and the overarching Consumer Duty. This approach allows lenders the flexibility to tailor affordability checks based on the specific product and individual borrower circumstances. The regulator acknowledged that mandatory affordability checks could make accessing credit more difficult for some frequent BNPL users. However, it noted that unregulated repeated borrowing has frequently resulted in missed payments, late fees, and compounding debt. The objective of the checks is to ensure credit remains sustainable and prevents long-term consumer harm. Firms offering BNPL will also be required to support borrowers in financial distress by offering tailored solutions, such as reduced payment arrangements or extended repayment terms, alongside signposting to free debt advice resources like MoneyHelper. The FCA plans to monitor the market's ongoing development and consumer impact through its regulatory reporting and Financial Lives survey.