FCA launches consultation on regulating Buy Now Pay Later lending

On 18th July 2025, the FCA launched a long-awaited consultation on its proposed regulatory framework for Deferred Payment Credit (DPC) (commonly known as Buy now pay later or BNPL). Earlier in the same week, the Government legislated to bring DPC lending within the regulatory perimeter. The consultation paper, which runs to 186 pages in length, sets out the FCA’s intended “proportionate” approach to regulating DPC, and seeks to balance consumer protection with the need to foster innovation and competition in the DPC lending market. On the day the consultation was published, we hosted a webinar with the FCA during which the FCA reiterated its intention to regulate DPC proportionately, highlighting that it will be down to firms to justify why their proposed approach is proportionate in the context of their customer base.

In overview, the Consultation proposes to apply many of the same rules to DPC lenders that apply to other consumer credit firms today (principally, specific chapters of CONC and its Consumer Duty rules), only creating bespoke rules where necessary to deliver appropriate consumer protection in the absence of certain CCA requirements. The result is a slightly odd mix of old and new. Whilst the move away from the prescriptiveness of the CCA is likely to be well-received by firms, it will leave many believing that the FCA has not quite gone far enough, stopping short of a regime that is truly bespoke or designed for the specific risks posed by DPC lending. We delve into the key points below.

Key points

1. Information requirements at agreement stage: In light of the disapplication of CCA disclosure requirements at pre-contractual and contractual stages, the FCA has identified information gaps during the DPC sales process which it is seeking to fill with new bespoke rules (that will form part of CONC). Firms will be required to give ‘key product information’ in a “prominent way” during the sales process, with an obligation to give or make available other specific ‘additional product information’. The ‘key product information’, which must be presented “proactively” such that no steps are required to be taken to see it, will be familiar to firms with regulated credit products in the UK today and includes ‘core’ matters such as the rate of interest (stating that it is 0%); amount of credit to be provided; number, amount and frequency of repayments; as well as more ancillary matters such as the existence of cancellation or withdrawal rights, FOS rights and (if relevant) an explanation of what a continuous payment authority is and how it works. The requirement to proactively ”give” information about FOS rights during the agreement process may surprise firms. In the main, the FCA is not prescriptive about how firms provide information, unlike the strict form and content requirements under the CCA, although the key and additional product information as well as the agreement must be provided to borrowers in a ‘durable medium’. Whilst uncommon in the DPC sector, the rules also make provision for DPC agreements entered into orally, allowing ‘key product information’ to be given orally, with durable medium copies of the key product information and additional product information to be given after the agreement is made.

2. Creditworthiness assessments: No doubt to the surprise of some firms in the DPC sector, DPC lending will be subject to the FCA’s existing creditworthiness rules in CONC 5.2A, irrespective of the amount borrowed. The FCA has stressed that these rules already give firms the flexibility to dial their assessments up or down depending on the lending being undertaken and are therefore fit for purpose for DPC lending. Addressing concerns about proposed ‘friction’ and checkout attrition, the FCA has highlighted the availability of innovative creditworthiness tools and automation although has strongly reiterated its expectation that firms consider affordability risk to a borrower - and not merely credit risk. Some firms may be alarmed to learn that repeat lending, even for small amounts and within a short time period after the previous advance, will be subject to a new creditworthiness assessment, although the FCA accepts that the scope and extent may be different. Firms will need to give careful thought to how they can demonstrate compliance with these nuanced expectations. While the FCA indicated – in our webinar - that they expect firms to apply the requirements of CONC 5.2A in a proportionate way, they were also clear that they will expect firms to justify their position (potentially using existing data) and reserve their right to disagree with any conclusions reached (e.g. where there is evidence of customer harm).

3. Information requirements during the life of a DPC agreement: The FCA is proposing to move away from prescriptive information requirements during the life of a DPC agreement (except in arrears scenarios) and will rely instead on Consumer Duty rules – in particular, its consumer understanding outcome rules and consumer support outcome rules.

4. Treatment of borrowers in financial difficulty: In the absence of mandatory CCA arrears notices (such as NOSIAs), the FCA proposes a twinned approach where borrowers miss repayments under DPC agreements, relying on CONC 7 (CONC’s existing chapters on arrears handling) alongside new rules, which require firms to communicate specific information to customers on specific trigger events following missed payments. Arrears servicing strategies must also have regard to a borrower’s ability to apply for a time order under s.129 CCA, an existing statutory right which allows a borrower who is struggling to meet their repayment obligations to apply to the court for an order to reschedule or restructure their payments. Firms will therefore need to take care to appropriately map their arrears communications strategies to align with the new requirements.

5. Price and value: Existing DPC lenders will, no doubt, already be actively considering how best to re-price their products vis-à-vis merchants and consumers to take account of increased compliance costs as well as changes to the DPC lending market. As a pointed reminder, the FCA has reiterated the need for DPC lenders to assess the impact of late fees in assessing whether their product offers fair value. Under CONC, such fees must reasonably reflect the costs to the firm. During our webinar, the FCA reminded firms that just because fees reflect costs doesn’t mean the product is providing fair value. Firms will therefore need to think carefully about the customer groups they are servicing and how fair value can be demonstrated for each.

6. Complaints: DPC lenders will need to comply with all aspects of the FCA’s complaints-handling rules to ensure complaints are dealt with promptly and fairly, and eligible complainants will gain access to the Financial Ombudsman Service (FOS) for complaints about DPC agreements. Given case fees of £650 per complaint, firms will have a strong commercial incentive (where the value of the underlying DPC agreement, or potential financial detriment, is low) to seek to address complaints fully and adequately with a customer directly to avoid recourse to the FOS. Firms may want to consider this point in their consultation feedback, as there is a real risk that, given the low potential redress costs coupled with high resource and potential FOS costs, DPC firms may default to upholding all complaints merely to avoid Ombudsman referrals. This does not align with the principle of consumers taking responsibility for their own decisions as described in the Consumer Duty non-handbook guidance and is unlikely to be an outcome the FCA intended.

7. The wider FCA Handbook: DPC lenders will need to get to grips with a host of other pre-existing FCA Handbook requirements, including, among other things, threshold conditions in COND, the systems and controls requirements in SYSC, and the senior managers and certification regime (SM&CR). These requirements all go to the expected governance and controls in place to run a regulated business, including the minimum senior personnel required to oversee and run a UK regulated firm, and will be a significant cultural change for firms operating outside of the regulatory perimeter today.

8. Reporting: DPC lenders will be required to submit regular data, including Product Sales Data, to the FCA. This will enable the regulator to monitor the market effectively and identify potential risks. The FCA states that collecting transaction-level data will allow it to “better understand the sector” and “more efficiently target [its] supervisory and policy work”. Firms will also need to ensure they have sufficient internal reporting to enable Consumer Duty monitoring obligations to be met and action to be taken where good outcomes are not being achieved.

9. Temporary Permissions Regime (TPR) and permissions: The Consultation clarifies that no new regulatory permissions will be added to the RAO and firms with existing article 60B RAO permissions for other consumer credit lending will not need to seek any additional permissions or enter the TPR to provide DPC lending. Firms currently offering DPC products without the necessary permissions will be able to continue operating under the TPR while applying for full authorisation. To address more complex ‘group’ DPC lending arrangements, the FCA has clarified that merchants that split lending and retailing across 2 or more separate legal entities will need to ensure each of the relevant legal entities in their group which are carrying on DPC lending hold the correct permissions, register for TPR or cease their relevant operations prior to Regulation Day.

10. Wider Consumer Credit reforms: The FCA has been clear in its consultation that “[its] approach to DPC regulation is not intended to determine the direction of CCA reform”; the FCA will, instead, consider the impacts of its approach on the DPC market, to help inform its future policy development as CCA reform progresses. Whilst this does not provide much by way of clues on the future direction of travel, it provides a glimpse into the way in which the FCA might respond to wider CCA reforms.

What are the timings?

Given the perceived “urgent” need to regulate DPC, there is a relatively short timeframe for firms to prepare for regulation and make the necessary changes to their businesses and products. Below is a timeline outlining key steps:

• 18 July – 26 September 2025: Consultation period open for stakeholder feedback.
• Q1 2026: FCA to issue a Policy Statement with final rules.
• Q2 2026: Two months before Regulation Day, the window for registration for Temporary Permissions Regime will open.
• 15 July 2026 (Regulation Day): New rules come into effect. Firms must either hold the necessary consumer credit permissions or be registered under the Temporary Permissions Regime to continue offering DPC products.
• 15 July 2026 – January 2027: Firms with temporary permissions can apply for full authorisation.

Firms that fail to obtain the necessary permissions by the deadlines will be prohibited from entering into new DPC agreements but may continue servicing agreements made before Regulation Day. Firms will therefore need to be organised and focused in order to be compliant in time for the new DPC regime.

To complicate matters, firms should also be aware of the FCA’s other recent consultation papers and the ‘Leeds reforms’ in the Chancellor’s Mansion House speech, as they too are likely to have a knock-on effect on the DPC regime. In particular, the FCA’s consultation papers on modernising the FOS redress system and review of the SM&CR are worth noting. The plethora of proposed regulatory developments was acknowledged by the FCA during our webinar and there was some suggestion that they could impact the FCA’s final rules for DPC.

You can view our commentary on the proposed reforms to the FOS redress system here and register for our webinar on consumer redress on 24 July here.

You can read our Flash SMCR View and listen to our webinar from 22 July here.

Next steps

Given the significance of these changes, the FCA is urging stakeholders, including DPC lenders, merchants, and consumer organisations, to engage with the consultation process. Feedback on the draft rules and proposals must be submitted by 26 September 2025. Please get in touch with us if you would like to discuss these developments, or if you would like our help in supporting you in responding to the consultation.