New Buy Now, Pay Later rules could protect you from debt traps. But what are the risks?

New regulations for Buy Now, Pay Later lenders will come into force in July this year to protect customers from debt traps, the Financial Conduct Authority (FCA) has announced.

But ethical lenders have warned the financial regulator that new rules for the popular instalment payment schemes risk shutting off some people from a financial lifeline.

Around 20% of UK consumers (10.9 million adults) use Buy Now, Pay Later (BNPL) allowing them to buy items and spread payments over time.

Until now, the sector has been lightly regulated – largely due to the speed of its growth, a 200-fold market expansion from £0.06 billion in 2017 to one worth over £13bn in 2024, according to the FCA.

But that’s about to change. Last year, the government announced plans to end the “wild west” of the BNPL industry by bringing it under the remit of the FCA.

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The watchdog unveiled its new rules for the sector on Wednesday (10 February). Lenders will need to carry out affordability checks before lending and give customers clear information about when their payments are due. If something goes wrong, customers will be able to complain to the Financial Ombudsman.

“We want the Buy Now, Pay Later sector to thrive,” said Sarah Pritchard, deputy chief executive at the FCA. “It provides an important source of credit to many – and we will continue to support firms who want to develop innovative new products.

“But crucially, no one should be lent to if they’re unable to repay because that could worsen their financial situation. Now parliament has given us the powers, we’re putting in place proportionate protections for the 11 million people who use it.”

Why is Buy Now, Pay Later being regulated?

Because it is so widespread, BNPL can seem harmless. But any kind of debt can impact a credit score and lead to court action and bailiff visits if repayments go unpaid. There may also be hidden charges, such as late fees.

The FCA found that BNPL users were more than four times as likely to have missed a payment of a bill or credit commitment in three of the six months to January 2023.

The collective scale of BNPL debt is huge – according to the watchdog, more than one million people had £500 or more outstanding unregulated BNPL debt in May 2024, and 11% of UK adults (5.3 million) had £50 or more outstanding.

This makes the new rules “hugely welcome,” said Peter Tutton, director of policy, research and public affairs at StepChange Debt Charity.

“Buy Now Pay Later can be a helpful way for people to spread costs. But like any form of credit, it carries risks when repayments become difficult. The absence of FCA regulation until now has only heightened the risk of financial harm for those relying on BNPL,” he said.

“Going forward people using BNPL products will be protected by affordability checks, consistent support from lenders and access to the Financial Ombudsman if things go wrong – these are all essential safeguards for borrowers using any type of credit.”

But the new rules are not without risks. Big Issue has previously spoken with families for whom BNPL schemes are a “lifeline”.

Without careful implementation, these new rules could “do more harm than good” to some, warned Simon Dukes, CEO of not-for-profit lender Fair For You.

Fair for You was established in 2015 – with backing from Big Issue Invest – to provide affordable loans to people who might be rejected by prime lenders like big banks.

“It’s clear that regulation of BNPL is needed – we’ve heard stories of these products causing hardship and stress for our customers, and others,” he said.

“But I worry that the new rules may cause more harm than good, by taking away an often very helpful product from millions of UK consumers.”

Becki, a mum of two from Middlesborough, told Big Issue that BNPL is “very very useful.”

“I can’t get some things on it, because of my credit. But at Christmas it’s really useful, I just pay the presents back over a year.”

Becki hopes that they don’t make it “too hard to get” – but adds that no one should be allowed to get into thousands of pounds of BNPL debt without intervention.

According to a new report from Fair4AllFinance, up to 30% of BNPL users could be declined access when regulation comes into force. Nearly half of those likely to be rejected have not missed a BNPL payment.

Some consumers could be pushed towards more expensive or unregulated alternatives, including high-cost credit ‘loan sharks’ or borrowing from friends and family.

“Blunt” affordability checks could lock people out of the schemes, said Niall Alexander, credit and consumer markets lead at Fair4All Finance.

“That risks creating a credit cliff edge, pushing people towards more expensive or even harmful alternatives.”

Nonetheless, BNPL undoubtedly has risks. Last year, Big Issue spoke to a single mum who ended up in court after getting £4,000 of BNPL debt.

“They just threw them at you in those days, I just got too many and in too deep,” she told us. “You just got them too easy. There was no explanation of how things worked.”

If you do find yourself struggling with debt, seek advice from a debt charity. Non-profit organisations like Citizens Advice, StepChange, and National Debtline can help you draw up a debt management plan.

Do you have a story to tell or opinions to share about this? Get in touch and tell us more. 

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