UK BNPL providers face tighter checks as new FCA rules may curb access

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UK BNPL FCA rules update

Highlights

New FCA regime requires UK BNPL lenders to assess creditworthiness and affordability on each transaction, potentially blocking up to 30 per cent of 10mn users.
Financial Ombudsman Service expects 2,000 BNPL complaints annually as access tightens, while a quarter of 2024 Money Wellness clients already have at least one BNPL loan.
Stricter rules may accelerate consolidation among BNPL providers due to compliance costs, with industry leaders like Klarna supporting regulation to boost trust and potential user growth.

FCA rules tighten lending standards

As reported by the Financial Times, the Financial Conduct Authority’s new regime requires UK lenders to assess a customer’s creditworthiness and the affordability of each loan every time a buy now, pay later product is used.

Providers may also need to request information on income and expenditure when a borrower has a patchy credit history or shows potential repayment risks. Under the rules, lenders must also support customers in financial difficulty, allow complaints to the Financial Ombudsman Service and offer refund rights similar to those attached to credit cards.

Fair4All Finance says 20 to 30 per cent of the more than 10mn people using BNPL loans in the UK could be blocked once the protections take effect. Chief executive Kate Pender says the new framework could create a credit cliff-edge for up to 30 per cent of current users, adding that more than half of those likely to be rejected have never missed a BNPL repayment.

The Financial Ombudsman Service is preparing for an increase in cases and forecasts about 2,000 BNPL complaints a year. Money Wellness says a quarter of customers seeking its advice this year have at least one BNPL loan, up from 15 per cent in 2023.

Market growth hopes and consolidation risk

Klarna and Clearpay are pushing back against concerns over falling access, arguing that regulation makes the products more attractive by giving consumers clearer protections and a formal complaints route. Klarna says it already carries out affordability checks and supports the regulatory changes because they make the service more appealing to more people.

Richard Bayer, chief executive of Clearpay UK, says the framework is designed to preserve inclusivity and argues regulated BNPL should attract more users. He adds that stronger safeguards are likely to lift trust in the sector and in turn increase demand for BNPL loans.

Industry participants also point to overseas markets including Australia and Turkey, where similar regulation was followed by market growth. Still, debt charities remain concerned that borrowers can build up obligations across multiple providers, with StepChange saying some clients arrive with dozens of separate BNPL debts.

The FCA estimated last year that 18 per cent of BNPL transactions between 2018 and 2025 would have failed a creditworthiness assessment, a figure it says is broadly in line with firms’ own estimates. Some advisers to providers say the compliance burden could accelerate consolidation as smaller operators reconsider whether they can remain in the market.

In our earlier coverage of Andrew Bailey’s Mansion House remarks on targeted UK rule changes, we outlined his argument that broad deregulation is too simplistic and that reforms should be narrowly designed to support both growth and financial stability. We also noted the Bank of England’s recent tweaks to leverage-related capital requirements and Bailey’s call for stronger international coordination on regulating advanced AI risks that could spill across borders.

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