UK

Status

Implementation underway

Is the country considering regulation?

Yes, the UK government concluded the final consultation of draft BNPL legislation at the end of 2024 with anticipation of the new legislation to be laid down by Parliament in H1 2025, which could mean new regulation in force by summer 2026.

Current state of regulation regarding BNPL?

Currently many firms providing interest free delayed payment methods benefit from the exemption found under Article 60F of the Financial Services and Markets Act (Regulated Activities) Order 2001 (the 60F Exemption), which generally exempts them from the scope of regulation agreements where no interest is charged and where there are 12 or fewer instalments in as many months. Firms providing BNPL products benefitting from the 60F Exemption do not have to be FCA authorised (but see below as to the financial promotions exemption) and the agreements do not need to be in a prescribed form under the Consumer Credit Act 1974.

Although lenders do not need to be authorised they may still be subject to the Financial Promotions regime. 

Outline the proposals to change regulation?

The UK Government will regulate all forms of BNPL, meaning BNPL lenders will require authorisation from the FCA. The Government intends to retain an exemption allowing merchants to introduce their consumers to BNPL providers (so avoiding a credit broking authorisation) and allow merchants to provide their own credit (independent of BNPL providers) provided that the terms of the 60F Exemption continue to be met, for example, a dentist may offer payment via an instalment plan (interest free and <12 months) will continue to be exempt.

The Financial Promotions regime will apply, meaning that merchants promoting credit provided by authorised BNPL providers will need to have their credit approved by an FCA authorised firm (likely the BNPL provider they are partnering with).

The Government have created a new anti-avoidance measure to prevent the restructuring of agreements by third-party lenders to become the merchant in the transaction they are financing having purchased the goods from the supplier.

What if any will be the consequences of BNPL legislation on merchants, brokers and consumers.

The FCA will create bespoke rules for BNPL agreements to create a proportionate approach to consumer protection and the operational feasibility of the consumer credit agreements on BNPL agreements, for example BNPL providers will still need to conduct affordability assessments to determine whether the service is suitable for the customer and existing CONC rules may be tailored for BNPL agreements.

Affordability assessments will lead to greater customer protection however may also result in consumers being declined from using the service.

Greater compliance costs for BNPL lenders (including possibility of disputes being referred to Financial Ombudsman Service);

BNPL lenders will become subject to section 75 liability which is a concept unique to the UK under which a lender is equally liable for any failure of a supplier to provide the financed goods and service]