The use of “Buy-Now Pay-Later” (BNPL) products has risen significantly in the UK in recent years, notably for online purchases.

The term “BNPL” typically refers to a type of interest-free instalment credit which allows borrowers to split the cost of purchases into regular payments not exceeding a 12-month period. Not all BNPL products are regulated by the FCA under existing consumer credit law; many unregulated BNPL agreements rely on an exemption set out in Article 60F of the Regulated Activities Order. 

In response to concerns about possible consumer detriment, in February 2021 the government announced its intention to bring certain currently exempt BNPL products into regulation in a proportionate way.

On 14 February 2023 HM Treasury launched a consultation (Consultation) and published draft legislation that will enhance the regulation of BNPL products and ensure greater oversight by the Financial Conduct Authority (FCA). Most significantly, the draft legislation will limit the scope of the Article 60F exemption so that many previously exempt BNPL agreements provided by third party lenders will become regulated.

The Consultation and draft legislation will be relevant for a range of groups including lenders which offer agreements that will be brought into regulation, merchants who offer BNPL as a payment option and also consumer groups.

The Consultation closes on 11 April 2023.

Consultation and legislation overview

The current Consultation (amongst other things):

• Confirms the government’s final policy position on the types of BNPL arrangement that will be in (and outside) the UK regulatory perimeter. Importantly, the government has concluded the scope of regulation should be limited to agreements that are offered by third-party lenders (except where the lender is able to use another exemption).
• Requests feedback on the draft legislation which in addition to amending Article 60F RAO is also intended to deliver the government's final policy position on the regulatory controls that will apply to newly regulated BNPL agreements. These include new rules relating to financial promotions and a FCA rules-based regime for pre-contractual disclosure.
• Sets out proposed transitional arrangements (notably the creation of a temporary permissions regime (TPR)) that will allow BNPL firms to operate until they are fully FCA authorised. Without a TPR an unauthorised firm would have to suspend operations until it had obtained FCA authorisation.
• Sets out the government’s policy positions and expectations on certain regulatory controls not included in the draft legislation. For example, the government’s view is that proportionate regulation of newly regulated agreements should include the ability for consumers to access the Financial Ombudsman Service for issues concerning the conduct of lenders.  

Next steps

Once the government has considered stakeholder feedback, it will consider any necessary changes to the draft legislation and intends to publish a consultation response which will set out the anticipated milestones for regulation. Following that, the government will lay legislation when Parliamentary time allows, with the ambition that this will be during 2023.

BNPL lenders and merchants that offer BNPL options should review the Consultation and begin to consider which products and activities are likely to impacted, to develop a plan to accommodate the new regime.

Your contacts

If you would like to discuss the Consultation, the draft legislation or the regulation of BNPL more generally, please contact:

Clare Jenkinson, Financial Services Regulation Partner

Chris Hill, Commercial & Technology Partner

James Henson, Financial Services Regulation Director

Richard Storey, Financial Services Associate Director

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