Buy Now Pay Later Sector to Face Financial Conduct Authority Regulation from July
The Financial Conduct Authority (FCA) will begin regulating the Buy Now Pay Later (BNPL) sector from July 15, introducing stronger consumer protections for millions of users. This move follows parliamentary approval and aims to ensure responsible lending practices across the rapidly growing industry.
Enhanced Consumer Safeguards Under New Framework
Under the new regulatory framework, BNPL providers will be subject to the Consumer Duty, requiring them to offer clearer information to customers, conduct proper affordability checks, provide support when borrowers struggle, and establish formal complaint and compensation procedures. Sarah Pritchard, deputy chief executive at the FCA, emphasized that while the authority wants the BNPL sector to thrive as an important credit source, no one should receive loans they cannot afford to repay.
"We're putting in place proportionate protections for the 11 million people who use it," Pritchard stated, highlighting that the regulations aim to prevent worsening financial situations for vulnerable consumers.
Experts Highlight Hidden Dangers of Regular BNPL Use
Financial experts have welcomed the regulatory changes but caution that BNPL usage carries significant risks that consumers must understand. Ranald Mitchell, Director at Norwich-based Charwin Mortgages, noted that BNPL has "exploded because it fills a gap" in household budgets, but warned that many people rely on it as a coping tool rather than a conscious choice.
"When the weekly shop, school costs or a replacement washing machine has to go on instalments, it's a sign of financial strain," Mitchell explained. "The new FCA regulation should help stop these silent debts from stacking up across multiple checkouts."
Credit Score Implications for Mortgage Applicants
Perhaps the most significant warning comes regarding credit scores and future borrowing capacity. Riz Malik, Director at Southend-on-Sea-based R3 Wealth, stressed that excessive BNPL use can negatively impact credit scores, potentially complicating applications for mortgages and other forms of finance.
"I've seen pages on credit files for BNPL, usually for nominal amounts," Malik revealed. "The public should be warned that just because you can pay for that phone, coat or pizza in monthly instalments doesn't mean you should."
Mitchell added crucial context for prospective homeowners: "Regular BNPL use can quietly eat into disposable income and undermine affordability, even if you've never missed a payment elsewhere. Used occasionally and repaid on time, it can be useful. Used habitually to make ends meet, it's a warning light that needs to be taken seriously."
Balancing Innovation with Consumer Protection
The FCA's approach seeks to balance support for financial innovation with necessary consumer safeguards. The authority has committed to continuing support for firms developing innovative products while ensuring that vulnerable consumers receive adequate protection from potentially harmful lending practices.
As the July implementation date approaches, both consumers and providers must prepare for the new regulatory landscape that will fundamentally change how BNPL services operate in the UK market.
