FCA unveil their long-awaited plans to regulate the Buy Now, Pay Later (BNPL) sector in 2026

The Financial Conduct Authority (FCA) initially announced plans to regulate the Buy Now, Pay Later (BNPL) sector on 2 February 2021. This decision followed the publication of the Woolard Review, which highlighted potential consumer harms associated with unregulated BNPL products.

After a lengthy consultation period, the FCA officially announced, on 20 May 2025, that regulation for the BNPL will come into effect in 2026. This will introduce affordability checks amongst other changes to improve consumer protection. This comes more than 1000 days after the FCA’s initial announcement to introduce regulations to the sector.

This is in the hope that consumers don’t Buy Now REGRET Later!

Furthermore, the FCA have dropped their widely anticipated announcement of their desire to reform the Consumer Credit Act (CCA) with  Phase 1 of their consultation now underway. This desire to modernise the CCA will be welcomed by all consumer lenders as well as BNPL providers as the FCA attempts to adapt the CCA to be:

• Proportionate – ensure the levels of consumer protection are appropriate depending on the amount and terms of the credit agreement.
• Aligned – aligns with the substance and style of the current regulations.
• Forward-looking – can be adapted over time as consumer credit modernises.
• Deliverable – adequate tine is given to lenders and the FCA to implement changes.
• Simplified – improve transparency and clarity for the consumer.

Challenges and opportunities following regulatory changes

The proposed changes aim to address the challenges and opportunities presented by the continued growth of the BNPL sector. The introduction of affordability checks will be a significant step forward in ensuring consumers are not overextending themselves. However, BNPL lenders will also have a desire to ensure this is completed in the most frictionless way possible to ensure consumers still pursue with their purchase.

The reforms to the CCA are expected to create a more balanced and modern regulatory environment that reflects the evolving nature of consumer credit.

Growth of the BNPL sector

Two years ago, we wrote an article that explored the rapidly growing Buy-Now-Pay-Later (BNPL) sector, highlighting the anticipated regulatory changes and exploring the impact of sharing BNPL data to credit bureaus. BNPL reporting, along with the introduction of Consumer Duty and the Credit Information Market Study Report had the hope of ensuring fair outcomes for all. Balancing the need for consumers to build their credit profile on responsible and affordable credit.

Since the release of that article, global growth in BNPL options has continued in a variety of forms directly from the merchant or retailer to “card” type products. Some BNPL lenders have flourished with Klarna continuing to dominate headlines in the UK after recently achieving 11 million active customers in the UK and doubling its merchant base in a year to 60,000.

The BNPL product continues to adapt to the modern consumer demand of an online shopping experience giving millions of consumers the chance to pay for what they want to buy (after returning any goods), with consumer protection whilst spreading the cost if they need to.

Consumer protection

However, growing concerns of “debt stacking” remains more prevalent than ever especially during the Cost-of-Living crisis, which continues to challenge consumers – particularly those with young families, who have seen both monthly bills and rent / mortgage payments increase simultaneously. Therefore, many consumer groups will be pleased to hear that BNPL regulation is coming into effect in 2026 which will include affordability checks.

Additionally, under the regulation, lenders will be expected to submit affordability assessments to the FCA, as part of new Product Sales Data (PSD) submissions coming in to force.

This means many UK BNPL lenders will be exploring affordability solutions with their own data but also looking into partnerships with third parties to find the most effective solution that meets their need for a low friction consumer experience whilst ensuring responsible lending decisions are made across all manner of households and levels of income. Any BNPL lender not already using credit bureau data will also need to reciprocate their data and implement credit reporting and dispute processes.

Affordability insights from 4most

At 4most, we’ve been monitoring the cost-of-living impacts using our own proprietary source of data from IE Hub. This data is collected at household level, and is updated monthly, making it far more granular, accurate, and up to date compared to ONS. We’ve seen use of this data in expenditure models realise significant uplift, typically around 10%, whilst demonstrably protecting consumers from unaffordable  credit.

Home energy bills have increased by over 50% in many cases, grocery costs have spiralled meaning consumers are putting less in their baskets and, although prices at the pump have moderated, vehicle fuel is more expensive. This is recently mirrored in the latest Inflation figures with Inflation rising again to 3.5%,

How 4most can support

Want to discuss, or require support, in any of the following areas?

1. Creditworthiness (incl. Affordability solutions) – a consumer’s ability to repay.
2. Reporting to FCA and Credit bureau – management of data quality, reporting, and customer dispute management 
3. Consumer protection – forbearance, treatment of vulnerability, Section 75 and jurisdiction of the Financial Ombudsman Service (FOS).

Get in touch – info@4-most.co.uk.