Shoppers using Buy Now Pay Later (BNPL) services will gain stronger rights to refunds and independent complaints adjudication from Wednesday, as new Financial Conduct Authority (FCA) rules require BNPL lenders to be authorised, according to the BBC.
Providers such as Klarna and Clearpay must now have FCA approval to operate, bringing them more in line with credit card providers and banks offering loans, reported the BBC. Campaigners had previously described the wider sector as an unregulated "Wild West."
What's Changing Under the New Rules
The FCA regulations introduce several key changes for BNPL users and lenders:
| Change | Detail |
|---|---|
| Refunds for faulty goods | Customers can claim refunds and compensation for faulty goods costing more than £100 from the BNPL provider under section 75, as already applies to credit card purchases. |
| Complaints to Ombudsman | Unresolved complaints about BNPL services can be referred to the Financial Ombudsman Service (FOS) for independent adjudication. The FOS expects to deal with about 2,000 cases by the end of March. |
| Affordability checks | Shoppers must pass an instant and automatic test that they can repay the loan; otherwise the BNPL purchase will be blocked. |
| Clear information | Borrowers must get clear upfront information about the loan, including what happens if a payment is missed, and be directed to free debt advice if in financial difficulty. |
Only lenders authorised by the FCA may now offer BNPL services. The BBC noted that stricter regulation aims to prevent people from taking on too much debt and being caught out by late payment fees.
Concerns Over Affordability Checks and Rejection Rates
Despite the strengthened consumer protections, there are fears that affordability checks will block some shoppers for the first time, potentially pushing them toward more expensive or unregulated alternatives.
Kate Pender, chief executive of not-for-profit Fair4All Finance, which promotes fair and accessible financial services, estimated that 10% to 30% of BNPL users would fail "conservative" affordability checks designed by each lender. "While regulation is clearly needed and welcomed, our recent research found that nearly half of those likely to be rejected have not missed a BNPL payment," Pender told BBC News. "The need for credit doesn't just disappear when you can't access it and people are often pushed towards more expensive or unregulated alternatives."
Pender added that loan sharks would be "thrilled at the prospect," with younger people or those who had repayment issues in the past among those more likely to be rejected. BNPL has proved particularly popular with 18 to 24-year-olds, although it has widespread use among all age groups.
Impact on Merchants and Retailers
Many debt charities have welcomed the changes, which they say have come after years of delay. However, they cautioned that some retailers' in-house BNPL products will fall outside the new regulation, according to the BBC. This means merchants offering their own BNPL plans may not be subject to the same FCA authorisation and consumer protection requirements.
Matthew Sheeran, external relations manager at advice service Money Wellness, noted that people are increasingly spreading smaller purchases across multiple BNPL agreements rather than using the product for occasional high-value items. "Our concern isn't Buy Now Pay Later itself. It's what can happen when people begin relying on multiple forms of credit simply to make ends meet," Sheeran said.
For cross-border e-commerce sellers, the new rules mean that BNPL providers they partner with must now be FCA-authorised, potentially limiting options. The affordability checks could reduce BNPL conversion rates for some customers, while refund rights under section 75 may shift liability for faulty goods from the merchant to the BNPL provider for purchases over £100. Sellers should review their BNPL integrations and ensure compliance with any updates from payment partners.
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