Shoppers using Buy Now Pay Later (BNPL) services will gain stronger consumer protections starting Wednesday, but some may be denied loans under stricter affordability checks. The new regulations require BNPL lenders to obtain authorization from the Financial Conduct Authority (FCA), bringing them in line with credit cards and traditional loans.
Key changes include:
- Customers can escalate unresolved complaints to the Financial Ombudsman Service (FOS), which expects about 2,000 cases by March.
- Consumers can claim refunds for faulty goods over £100 directly from the BNPL provider, similar to Section 75 protections on credit cards.
- Shoppers must pass an instant affordability test for each transaction; failure will block the purchase.
- Lenders must provide clear upfront information about loan terms and direct borrowers to free debt advice if needed.
While regulators aim to prevent over-indebtedness, Kate Pender, CEO of Fair4All Finance, warns that 10% to 30% of BNPL users may fail the checks, pushing them toward loan sharks. "Nearly half of those likely to be rejected have not missed a BNPL payment," she said.
BNPL has surged in popularity, especially among 18-24-year-olds, but critics say it often feels like "convenience" rather than debt. Tim Riesner, a former construction worker who accumulated £24,000 across multiple loans, said: "It didn't feel like debt. It felt like convenience. Advertising is very seductive."
Debt charities welcome the changes but urge caution, noting that some retailer in-house BNPL schemes remain exempt from the new rules.