BNPL regulation is (finally) coming

What it means for lenders, brokers and HCSTC providers

Buy Now, Pay Later (BNPL) has moved from a clever checkout add-on to a core part of the UK credit market. Policymakers have now set out a clear path to full regulation — with hard dates, defined scope and a transition route. This piece fact-checks the latest position and turns it into a plan you can execute.

Note on scope: PS25/3 is an FCA policy statement about consumer credit regulatory returns, not BNPL authorisation. It’s separate from the BNPL regime discussed below.

Where we are now

• Government position (May 2025): HM Treasury confirmed it will regulate BNPL — formally called Deferred Payment Credit (DPC) — and published its final response with draft legislation. The Government expects BNPL to enter regulation around mid-2026 (and has since set the date via industry updates).
• FCA rulemaking (July 2025): The FCA published CP25/23 proposing how it will regulate DPC. The consultation closes 26 September 2025 and the FCA signals go-live in 2026. Multiple legal briefings and FCA pages indicate a working “regulation day” of 15 July 2026.
• Why this is moving: BNPL use is substantial (Reuters reports 10m+ UK users in the last year) and the FCA’s new research (Occasional Paper 69) finds users are, on average, younger, less credit-worthy and almost twice as likely to be in serious financial distress as the general population — strengthening the case for proportionate protections.

What will be in scope — and what won’t

• In scope: BNPL agreements offered by third-party lenders (the typical checkout BNPL model). These lenders will need FCA permissions and will be subject to the Consumer Duty, creditworthiness/affordability rules and conduct standards tailored to BNPL.
• Out of scope (for now): Merchant-provided instalment credit that fits the Article 60F(2) RAO exemption (interest-free, ≤12 instalments within 12 months, financed by the supplier) remains exempt. The government will monitor this segment and can revisit it if harm emerges.
• Credit broking: Most merchant BNPL broking activity remains exempt from authorisation, but merchants’ financial promotions for BNPL must be compliant (typically requiring approval by an authorised approver).
• Key consumer protections coming: access to the Financial Ombudsman Service and Section 75 CCA protections for regulated BNPL, with the FCA designing a modern, rules-based disclosure regime rather than using legacy CCA paperwork.
• Temporary Permissions Regime (TPR): A TPR will allow existing BNPL providers to keep operating while FCA authorisation is processed; firms in TPR can communicate their own promotions for onward use by unauthorised merchants (but cannot approve third-party promotions).

Evidence of harm (and what it means for risk)

The FCA’s Occasional Paper 69 is worth a close read. It finds BNPL users carry higher unsecured debt and are more vulnerable; BNPL borrowing modestly increases future BNPL missed payments, but doesn’t show consistent causal effects on other credit arrears. Interpretation: the users are already higher-risk, and BNPL can compound issues at the margin — exactly where Consumer Duty, fair treatment in arrears and proportionate disclosures matter.

Implications by firm type

• Consumer credit firms (mainstream & specialist): Expect a more level playing field with third-party BNPL lenders entering regulation. Affordability frameworks, arrears handling and operational resilience will need to cover high-volume, low-ticket instalments. Data-sharing to CRAs is squarely on the radar via FCA’s credit information work — plan for structured BNPL data and consistent reporting across your portfolio.
• HCSTC lenders: Two dynamics to watch: (1) regulated BNPL may absorb some short-duration demand you currently serve, but (2) stricter BNPL affordability checks could redirect higher-risk borrowers back to you. Either way, review your product governance, forbearance and distribution (especially any merchant or broker channels) to evidence robust outcomes under the Duty.
• Credit brokers & merchants: If you’re broking third-party BNPL at checkout, you may stay exempt, but your promotions must be compliant — typically via an authorised approver. Map exactly where and how BNPL is promoted (on-site banners, emails, in-store collateral), and ensure approver workflows are in place ahead of go-live and TPR.

Preparation checklist (start now)

• Regulatory permissions strategy: Decide whether you’ll enter the TPR and sequence your full Part 4A application (scope of permissions, controllers, SMF map). Build a clear board paper and timeline to 15 July 2026.
• Creditworthiness & affordability: Calibrate proportionate BNPL models (soft searches, bureau data, income and vulnerability flags). Make sure decisions are explainable and auditable under the Duty.
• Customer communications: Replace legacy CCA-style packs with concise, digital-first disclosures (pre-contract info, variation, arrears). Track comprehension and outcomes.
• Promotions governance: If you’re unauthorised, line up an approver; if you’re authorised (or in TPR), define what you can communicate and how you oversee merchant use. Keep a live register of approvals and expiries.
• Arrears & forbearance: Benchmark CONC processes against short-cycle BNPL behaviour (multiple concurrent agreements, small balances, digital channels). Evidence vulnerability handling and signposting.
• Data & CRA strategy: Prepare to share BNPL data consistently to designated CRAs once the FCA’s remedies crystallise; align file formats across products and tighten disputes/accuracy controls.

Don’t confuse this with PS25/3 (reporting)

• A quick clarification given recent commentary: PS25/3 covers consumer credit regulatory returns and the FCA’s approach to Product Sales Data (PSD) and new returns — it doesn’t bring BNPL itself into scope. BNPL regulation comes via HM Treasury’s legislation and the FCA’s CP25/23 rulemaking.

How Alph Legal & Compliance can help

• Authorisation & TPR: Readiness assessments, Part 4A applications, SMF/SoRs and governance build-out.
• Conduct & Duty: BNPL-specific affordability, treatment of vulnerable customers, and outcomes testing.
• Promotions & broking: End-to-end approvals framework, merchant oversight and MI.
• Operating model & data: CRA reporting design, complaints/FOS playbooks, arrears/forbearance refresh.
• Board education & FCA engagement: Briefings, consultation responses, and hands-on support through supervisory interactions.

ALPH Legal & Compliance can assist with all aspects of your business’s compliance needs, whether that be compliance structure and policy, internal/external audit, business and regulatory change support, authorisation, supervision or just some general expert advice and guidance!

With all the regulatory shifts on the horizon, now is the time to act. Don’t wait until compliance gaps appear—engage with ALPH Legal & Compliance today to ensure your firm is ahead of the curve. Whether you need tailored guidance, compliance support, or strategic insights to drive new business, ALPH Legal & Compliance is your trusted partner in navigating FCA regulations with confidence.