News summary produced by Claude AI
Beginning Wednesday, Buy Now Pay Later (BNPL) services will operate under formal regulation requiring Financial Conduct Authority approval, marking a significant shift for an industry that critics have previously described as largely unregulated. The regulatory changes introduce several consumer protections aligned with traditional credit products, including access to the Financial Ombudsman Service for complaint resolution and section 75 protections that allow consumers to claim refunds and compensation for faulty goods costing more than £100.
Major BNPL operators including Klarna and Clearpay have expanded rapidly by offering interest-free installment payment options, becoming particularly popular with younger consumers. Under the new rules, all BNPL lenders must conduct automatic affordability assessments before approving transactions, blocking purchases if borrowers cannot demonstrate capacity to repay. Lenders must also provide clear upfront information about loan terms and direct consumers toward free debt advice when appropriate.
Campaigners and consumer advocates have raised concerns that the affordability checks may be overly restrictive, potentially excluding between 10% to 30% of current BNPL users from accessing credit. Fair4All Finance research suggests that nearly half of those likely to be rejected have never missed a BNPL payment, leading to worries that excluded consumers may turn toward less regulated or more expensive borrowing alternatives. Klarna has disputed these concerns, stating that the new requirements largely formalize practices already in place at their organization.
Debt charities have generally welcomed the regulatory changes after years of advocacy for oversight, though they note that some retailer-operated BNPL products may fall outside the new framework. Industry data indicates substantial growth in BNPL usage, with more than 100 million transactions valued at over £7 billion occurring in 2025, with 98.5% of balances repaid on time. Experts continue urging consumers to treat BNPL as genuine borrowing rather than convenience, particularly as evidence emerges of consumers using multiple simultaneous BNPL agreements for everyday essentials.