UK to crack down on Buy Now Pay Later from July – here are the new rules for Klarna, Clearpay, and others
The UK’s Financial Conduct Authority (FCA) is set to impose significant new oversight on the booming Buy Now Pay Later (BNPL) sector, with tougher consumer protections taking effect from 15 July 2026.
The regulator has finalised rules that classify unregulated BNPL products, often referred to as deferred payment credit (DPC), as a form of consumer credit.
From Regulation Day, firms offering these interest-free instalment plans will need FCA authorisation to operate, marking the end of the sector’s largely unregulated status.
BNPL has exploded in popularity in recent years, allowing shoppers to split purchases into payments without immediate interest. Providers like Klarna, Clearpay and Afterpay have become fixtures at online checkouts and in physical stores.
However, concerns have grown over rising consumer debt, particularly among younger and lower-income users who may overextend themselves with multiple BNPL agreements.
Under the new regime, BNPL lenders must:
- Obtain full FCA authorisation (or operate under a temporary permissions regime during transition).
- Comply with the FCA’s Consumer Duty, requiring them to deliver good outcomes for customers.
- Conduct proportionate affordability assessments to ensure borrowers can reasonably repay.
- Provide clear key product information upfront, including payment schedules, risks, total costs and whether credit checks will be performed.
- Give customers access to the Financial Ombudsman Service for complaints.
Merchants that simply offer BNPL as a payment option at checkout will generally remain exempt from authorisation, though they may face new disclosure and data requirements when partnering with regulated lenders.
A six-month transition window
Firms without existing consumer credit permissions can register for the FCA’s Temporary Permissions Regime (TPR) between 15 May and 1 July 2026.
This will allow them to continue offering new BNPL products while they complete full authorisation applications, which they will have six months to submit after the regime begins.
Agreements signed before 15 July 2026 will remain unregulated, meaning existing customers won’t automatically gain the new protections on prior deals.
The FCA has stressed that BNPL remains “an important source of credit for many people” but highlighted the need for responsible lending to prevent harm.
The move follows years of consultation and government legislation to bring BNPL into the regulatory perimeter. Previously, short-term, interest-free BNPL fell outside traditional consumer credit rules, creating a regulatory gap that left some consumers without standard safeguards.
Consumer groups and debt charities have long warned that easy access to BNPL can mask the real cost of borrowing, especially when users stack multiple plans or miss payments, potentially damaging their credit scores.
The changes align with the FCA’s broader push for ‘smarter, more effective regulation’ – focusing on outcomes rather than box-ticking while maintaining innovation.
What it means for consumers and businesses
For shoppers, the changes should mean greater transparency, and checks should reduce the risk of unaffordable debt. Borrowers will also have clearer rights to cancel, settle early, and complain via the Ombudsman.
Larger, well-prepared providers are expected to adapt relatively smoothly. Smaller or newer entrants may face higher compliance costs, potentially leading to market consolidation. Merchants will need to update checkout processes and partner only with authorised lenders after July.
The FCA has committed to providing pre-application support to help firms prepare.
