On July 15, 2026, deferred payment credit — the interest-free instalment product better known as Buy Now Pay Later — stops being a regulatory blind spot in the UK. Third-party BNPL lenders such as Klarna and Clearpay must now hold Financial Conduct Authority authorisation (or temporary permission) to keep lending, and every new agreement carries mandatory affordability checks, Consumer Duty obligations, Section 75 refund rights, and access to the Financial Ombudsman Service. The rules were finalised in the FCA's policy statement PS26/1, published 11 February 2026, following legislation Parliament passed in July 2025 to bring the product inside the regulatory perimeter for the first time.
The Case For Regulating It
The strongest argument for this regime is simple: BNPL grew into a mainstream credit product while operating as if it were neither. UK deferred payment credit lending expanded from roughly £0.06 billion in 2017 to over £13 billion in 2024, and about 20% of UK consumers — close to 11 million adults — used it in the twelve months to May 2024, according to FCA data cited in its own press release. A product that size, sitting outside the Consumer Credit Act's disclosure regime and outside ombudsman jurisdiction, left a real accountability gap: no standardised affordability check before checkout, no formal complaints route if a lender mishandled arrears, and no requirement to explain the consequences of a missed instalment before someone clicked "pay in three." Critics of the pre-2026 status quo were not wrong that unregulated instalment credit, marketed at the point of sale to often younger or lower-income borrowers, is exactly the kind of product where a light-touch information asymmetry can compound into real financial harm.
What Actually Changes on Regulation Day
The new regime is narrower than "BNPL gets regulated" suggests, which is precisely what makes it defensible. It applies only to third-party lenders — where the credit provider is a different business from the retailer — leaving merchant-funded instalment plans, employee purchase schemes, insurance premium financing, and social housing tenant agreements outside scope. Lenders must run a "proportionate" affordability assessment before each agreement, not a blanket hard credit check on every purchase. Consumer Duty requires clear upfront disclosure of payment schedules and the consequences of missed payments, plus a duty to signpost free debt help to struggling customers. Section 75 of the Consumer Credit Act 1974 — the same joint-liability protection credit card users have long relied on for purchases between £100 and £30,000, as Which? explains — now extends to BNPL, meaning a lender shares liability if goods never arrive or turn out faulty. And unresolved disputes can now go to the Financial Ombudsman Service rather than dead-ending with the lender's own complaints team.
Crucially, none of this is retroactive: agreements taken out before July 15 remain unregulated, and the FCA ran a Temporary Permissions Regime from May 15 to July 1 so lenders already trading — Klarna, Clearpay, PayItMonthly, PollenPay, and several credit unions among them — could keep operating while their full authorisation applications are assessed, with a six-month runway to complete that process. Firms that neither hold authorisation nor registered for the TPR now commit a criminal offence if they write new DPC agreements. That is a hard deadline with teeth, but it was flagged fourteen months in advance.
A Proportionality Test the FCA Mostly Passes
"We want the Buy Now Pay Later sector to thrive... But crucially, no-one should be lent to if they're unable to repay."
That framing from FCA deputy chief executive Sarah Pritchard, in the regulator's own announcement, is the right instinct: targeted disclosure and affordability rules for a credit product, not a ban or an interest-rate cap that would push borrowers toward costlier alternatives. The scope carve-outs for merchant-funded and employer-funded schemes show the FCA drew the perimeter around genuine third-party lending risk rather than sweeping in every deferred-payment arrangement. And the industry's own reaction — Clearpay welcoming "a consistent operating environment," Klarna saying the rules will "raise standards across the market," UK Finance backing "more flexible regulation through the FCA" — suggests the largest incumbents see compliance costs as a moat against smaller, less-capitalised competitors rather than an existential threat, which is worth watching. A well-capitalised BNPL sector consolidating around three or four authorised players is a very different market than the fragmented one regulation was meant to discipline, and the FCA's post-implementation review should track exactly that.
The honest risk is not over-regulation but under-monitoring what proportionate rules produce in practice. Affordability checks calibrated too loosely repeat the old problem under a new authorisation stamp; calibrated too strictly, they price out exactly the near-prime borrowers BNPL was serving as a genuine alternative to payday credit. Getting that calibration right, not the headline of "BNPL is now regulated," is where this regime will actually be judged.