Policy Statement PS26/1 Regulation of Deferred Payment Credit (unregulated Buy Now Pay Later): Feedback to CP25/23 and final rules

Key Take Aways

1. The FCA is bringing Deferred Payment Credit (DPC), commonly known as Buy Now Pay Later (BNPL), into regulatory scope from July 2026, aiming to enhance consumer protection and market integrity.
2. The regulation applies most existing consumer credit rules to DPC lenders, alongside new specific rules on product disclosures, creditworthiness assessments, and customer communications.
3. The approach is outcome-focused, leveraging the Consumer Duty to promote responsible lending, informed decision-making, and better consumer outcomes.
4. The final rules emphasise a tailored, proportionate framework, balancing consumer protection with industry innovation and competitive dynamics.
5. There is recognition that some firms, especially smaller or unauthorised, will need to transition into the FCA’s authorisation regime via the Temporary Permissions Regime (TPR), with detailed registration procedures outlined.
6. The FCA is extending the scope of dispute resolution mechanisms, notably applying DISP complaint handling rules and expanding the Financial Ombudsman’s CJ to cover DPC activities from Regulation Day.
7. The FCA maintains that the Financial Services Compensation Scheme (FSCS) will not extend to DPC, aligning with the broader consumer credit market, citing low risk of consumer financial loss.
8. Ongoing regulatory reporting, including Product Sales Data (PSD), will be compulsory for fully authorised firms, with transitional arrangements for those in TPR, and an expectation of data-driven market monitoring.
9. The regime incorporates specific rules on providing information pre- and post-contract, including product disclosures, support during arrears, and notices prior to enforcement actions, with flexibility for firms on delivery channels.
10. The regulation explicitly addresses the treatment of guarantors and default scenarios, including obligations to communicate about missed payments, adverse outcomes, and steps to mitigate harm.
11. Underpinning the regime’s design is a focus on monitoring unintended consequences, with particular attention to vulnerable consumers, potential shifts to unregulated credit, and market concentration risks.
12. The consultation process was broadly supported by industry stakeholders, but concerns remain regarding compliance costs for smaller firms and the proportionality of dispute resolution fees, prompting ongoing monitoring.

Key Statistics

• The DPC market grew from £0.06bn in 2017 to over £13bn in 2024.
• Approximately 20% of UK consumers (around 10.9 million adults) used DPC in the 12 months to May 2024.
• Over 45 responses were received for the FCA consultation, including from industry, consumer groups, and academics.
• The FCA estimates one-off compliance costs at £18m, with ongoing costs around £180m over ten years (PV).
• The cost benefit analysis suggests total benefits of £2.4bn against costs of £2.7bn (PV over 10 years), noting a likely reduction in transactions following regulation.
• The Financial Ombudsman’s case fee for DPC complaints stands at £650, with concerns raised about its proportionality relative to typical case values.

Key Discussion Points

• The importance of a proportionate, outcome-based approach that leverages existing rules and adopts specific rules to address DPC market risks.
• The phased approach to firm registration and regulation, including the detailed process for firms entering the TPR and subsequent full authorisation.
• The balance between regulatory certainty and flexibility, especially around product disclosures, communications during arrears, and handling of missed payments.
• The reinforcement of dispute resolution mechanisms, including the extension of DISP rules and expansion of the FCA’s CJ for complaints.
• The decision not to extend FSCS coverage to DPC, citing the low likelihood of consumer financial loss and aligning with broader credit market policies.
• The emphasis on ongoing market monitoring, including data collection, supervisory engagement, and review of unintended consequences impacting vulnerable groups.
• Industry concerns about compliance costs for high-volume, low-value providers, and the potential impact on market competition and consumer access.
• The recognition of market concentration risks, particularly with large retailers offering unregulated credit, and the need for post-implementation oversight.
• The role of creditworthiness assessments, including application to small sums (£50 or less) and reliance on existing flexibility within the rules.
• The integration of environmental, social, and governance considerations, especially the potential for regulation to influence consumption behaviours and environmental sustainability.
• The importance of transparency for consumers regarding regulatory status, especially during transition periods, and clear communication about rights and protections.
• The value placed on continued industry engagement to refine the regime and address emerging issues post- Regulation Day.

Document Description

This article provides a comprehensive overview of the FCA’s final policy approach to regulating Deferred Payment Credit (DPC), or Buy Now Pay Later (BNPL), ahead of implementation in July 2026. It details the core elements of the new regime, including conduct standards, dispute resolution, authorisation procedures, and reporting requirements. The document captures stakeholder feedback, the FCA’s regulatory rationale, and the planned monitoring framework, aiming to promote responsible lending, protect consumers—in particular vulnerable groups—and ensure market sustainability through proportionate oversight.