REGULATION UPDATE | CONSUMER CREDIT
TL;DR
From 15 July 2026, Buy Now Pay Later services including Klarna, Clearpay and PayPal become fully FCA-regulated for the first time. Lenders must run affordability checks, give clear information before checkout, and allow complaints to the Financial Ombudsman. Section 75 protection applies to eligible purchases from that date.
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Key Facts
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What changes on 15 July 2026
Buy Now Pay Later has operated outside FCA regulation since its rapid expansion in the late 2010s. The products were exempt from the Consumer Credit Act 1974 under an exemption for short-term interest-free credit. From 15 July 2026 that exemption is removed for third-party BNPL lenders, bringing them fully within the FCA's regulatory perimeter for the first time.
The FCA's deputy chief executive Sarah Pritchard said: "We want the buy now, pay later sector to thrive - it provides an important source of credit to many. But crucially, no one should be lent to if they are unable to repay because that could worsen their financial situation. Now Parliament has given us the powers, we are putting in place proportionate protections for the 11 million people who use it."
BNPL before and after: what changes for consumers
| Area | Before 15 July 2026 | From 15 July 2026 |
|---|---|---|
| Affordability checks | Not required | Mandatory before every agreement |
| Information at checkout | No standard requirement | Clear upfront: amounts, dates, missed payment consequences |
| Complain to FOS | Not available for BNPL | Available for all covered DPC agreements |
| Section 75 protection | Not available | Applies to eligible purchases £100 to £30,000 |
| Lender authorisation | Not required | FCA authorisation required to operate |
| Support if struggling | No regulatory requirement | Firms must offer support and signpost debt advice |
| Old agreements | Unregulated | Remain unregulated - rules are not backdated |
Which providers are covered
The new rules apply to third-party BNPL lenders - firms that provide the credit separately from the retailer you are buying from. This is the classic BNPL structure: you shop at a retailer, but your agreement is with Klarna, Clearpay, PayPal Pay Later or another separate lender.
If the retailer itself is providing the instalment plan and you owe the money directly to the shop - not a separate finance company - that arrangement may sit outside the new DPC framework under a different exemption for point-of-sale credit. The key question is: who do you owe the repayments to? If the answer is a BNPL provider rather than the retailer, the new rules are likely to apply.
Merchant-provided instalment credit (where a retailer directly offers spread payments with no third-party lender involved) remains exempt under Article 60F(2) of the Regulated Activities Order.
Section 75 protection explained
From 15 July 2026, Section 75 of the Consumer Credit Act applies to eligible BNPL agreements for purchases between £100 and £30,000. This means the BNPL lender is jointly liable with the retailer if something goes wrong with a qualifying purchase - for example if a retailer fails to deliver goods, delivers faulty goods and refuses a refund, or goes out of business before the order is fulfilled.
This is significant. Section 75 protection is one of the strongest consumer rights in UK consumer credit law and has historically been one of the key advantages of paying by credit card. BNPL users will now have a comparable protection for covered purchases made from 15 July onwards. The protection does not apply to agreements entered into before that date.
What affordability checks mean in practice
BNPL lenders must now carry out a proportionate creditworthiness assessment before approving any DPC agreement. The FCA has said this does not need to be identical to a full credit check for a large loan - it should be proportionate to the size and risk of the credit being offered. For a small BNPL instalment, the assessment may be lighter than for a larger arrangement. However, even for purchases under £50, some form of affordability assessment is required.
This means users will face more friction at checkout than previously. Providing income or expenditure information may be required for some providers and some purchase sizes. Users who are already stretched financially may find some applications declined where they would previously have been approved automatically.
What existing BNPL users should know
If you have active BNPL agreements opened before 15 July 2026, those agreements remain outside the new regulatory framework. The new rights - including FOS access and Section 75 protection - apply only to agreements taken out on or after 15 July 2026.
If you are struggling to repay existing BNPL debts, free debt advice is available from StepChange, National Debtline and Citizens Advice regardless of the regulatory status of the agreement. From 15 July, lenders with new regulated agreements must also direct struggling customers to free debt advice services.
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Disclaimer: This article is for general information only and does not constitute financial, legal or employment advice. Kaeltripton.com is an independent editorial publisher and is not regulated by the FCA or TPR. Always verify information at primary sources and consult a qualified adviser before making decisions. |
Frequently asked questions
Does this affect Klarna, Clearpay and PayPal Pay Later?
All three are third-party BNPL lenders and their DPC products fall within the scope of the new rules where the standard criteria are met. Each provider is making changes to comply with FCA requirements ahead of the 15 July date.
Can I now complain about old BNPL agreements to the FOS?
The FOS cannot handle complaints about unregulated BNPL agreements entered into before 15 July 2026. For issues with old agreements, your options are the provider's own complaints process, or in some cases the courts. Citizens Advice can help you understand your options.
What happens if a BNPL firm is not FCA-authorised after 15 July?
BNPL firms that continue to offer DPC products without FCA authorisation or Temporary Permissions Regime status after 15 July 2026 are operating illegally. You can check whether a firm is authorised or registered on the FCA Financial Services Register at register.fca.org.uk.
Does Buy Now Pay Later affect my credit score from 15 July?
The FCA rules do not directly mandate credit file reporting. Whether and how BNPL providers report to credit reference agencies varies by provider. Check the terms of your specific agreement for the provider's current policy on credit reporting.
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Primary Sources |
