'Buy now, pay later' regulation coming into force next year – what it means for you
Shoppers using 'buy now, pay later' (BNPL) schemes will be given stronger rights and clearer information under new rules coming into effect next year, the government has announced.
BNPL schemes, such as Clearpay, Klarna and Laybuy, have soared in popularity in recent years. They allow you to split the cost of a purchase into instalments, interest-free.
Plans to regulate BNPL schemes were first announced in 2021, after a number of Which? investigations exposing consumer harm in the sector.
Following a consultation, the government has announced that regulation will come into force in 2026, bringing BNPL products in line with other types of credit.
Here, we explain how the new rules will work and what they'll mean for your BNPL shopping.
Section 75 and access to the FOS
Currently, BNPL schemes are not regulated by the Financial Conduct Authority (FCA).
This means you won't benefit from Section 75 protection if something goes wrong with your BNPL order, unlike when you make a purchase using your credit card.
It also means you can't complain to the Financial Ombudsman Service (FOS) if you're unhappy with the service you've received from your provider.
Under the new rules, BNPL shoppers will be able to make Section 75 claims. This means the BNPL provider will be jointly liable with the retailer if anything goes wrong with purchases costing between £100 and £30,000.
You'll also be able to escalate complaints to the FOS if you run into issues with a BNPL provider or purchase.
- Read more: make a Section 75 or chargeback claim
Upfront affordability checks
Under the new legislation, BNPL providers will have to carry out upfront affordability checks to ensure shoppers can manage the debt they're taking on.
Currently, BNPL firms don't have to run affordability assessments before lending to you.
Most of the big providers, such as Klarna, Laybuy, PayPal and Zilch only run soft credit checks, while Clearpay doesn't run any checks at all. It instead gives customers a low lending limit which increases with successful repayments.
We've previously expressed concerns that many BNPL customers don't realise they're taking on debt or consider the prospect of missing repayments, which can lead to late fees and damage to credit scores.
- Find out more: BNPL schemes explained
Clearer information and faster refunds
Many online retailers now offer multiple BNPL schemes as payment options.
Sometimes, you'll see four or five different BNPL providers on a retailer's checkout page, with little information on how each product differs in terms of repayments, late fees and credit checks.
The new rules mean that BNPL firms will have to follow consistent standards so shoppers know what they're signing up to, whether they can afford the purchase and how to get help if needed.
BNPL shoppers will also have 'fairer and faster' access to refunds.
Which? has previously found that some 'pay later' customers had been left waiting for slow refunds (or for outstanding payments to be settled) after returning unwanted items.
How to shop safely with BNPL
- Always read the T&Cs carefully before deciding which scheme to use. With some retailers, you might have to dig around to find out more information about late fees, repayments and credit checks.
- Set up alerts for repayments in your diary or on your phone so you know exactly what to pay back and when. This is particularly useful if you have a number of different repayment plans with different BNPL providers. Make sure to note whether the payments will come out automatically or if you need to manually pay them.
- Draw up a budget so you know how much money you're paying back each month, and how much money you can spend. Again, this might be handy if you've got various different repayments to make with different BNPL firms. A budget should keep you on track to meet your payments.
- Make any returns promptly so you don't end up making repayments for something that you want to send back. We've heard anecdotally from BNPL users that refunds can take longer to process if you've paid with a pay later scheme, so it's worth sending your items back asap.
- Contact the BNPL provider if you think you might miss a repayment. Honesty is the best policy in this situation, and you might be able to come to an agreement on how to fulfil the rest of your instalments.
This story has been updated since it was first published. Thr last update was on
