Key points

• Merchant-provided BNPL remains outside the scope of regulation. In its consultation from February 2023 on draft BNPL legislation, the previous Government confirmed that agreements provided directly by merchants online or at a distance would not be captured by the new regime as doing so would be disproportionate relative to the lack of consumer harm. Some stakeholders raised concerns that such an approach would create an uneven playing field, particularly if large techs and e-commerce platforms begin offer unregulated BNPL agreements at scale. The Treasury has decided to follow the position of the previous Government, but stated that it will continue to monitor the profile of the merchant-provided credit sector and respond if significant change or potential consumer harm is detected.
• Consumer Credit Act 1974 (CCA) information disclosure requirements remain disapplied. The Treasury maintains its position that applying the CCA's requirements for information disclosure (and other provisions relating to information) to BNPL products would be disproportionate and would not promote optimal consumer outcome. This position is in line with the Government's approach to consumer credit regulation more broadly: to modernise consumer credit regulation, the Government launched a separate consultation proposing to repeal the remaining provisions in the CCA in favour of a more appropriate FCA rules-based regime. The FCA will be able to develop information disclosure rules bespoke to the nature of BNPL products.
• CCA sanctions regime remains disapplied. The disapplication of the CCA's information disclosure requirements for BNPL lending means that the CCA's legislative sanctions will also not apply. These sanctions include unenforceability without a court order, unenforceability during breach, and disentitlement. There was concern that the loss of these sanctions would impact consumer protection; however, the Treasury is confident that the BNPL regulatory regime will provide users with sufficient protections, particularly through FCA enforcement action, the Financial Ombudsman Service (FOS), the application of the Consumer Duty, and the rules on arrears and forbearance in the FCA's Consumer Credit sourcebook (CONC).
• Time orders remain preserved for BNPL agreements. The Treasury will retain for BNPL borrowers the ability to apply for a "time order". A "time order" enables the court, if it is just to do so, to provide more time for payment under an agreement to reasonably reflect the customer's ability to repay the debt within a reasonable period. The Treasury notes that the FCA will be able to develop related rules tailored specifically to BNPL products.
• Position on domestic premises suppliers not yet final. Although the draft legislation requires domestic premises suppliers (i.e., businesses that sell, offer to sell or agree to sell goods or offer to supply or contract to supply services in people's homes) to be authorised as credit brokers, this is not the final policy position. Concerns about the approach to domestic premises suppliers were raised at a late stage, particularly in relation to a new and emerging market for invoices with BNPL payment options provided by partner invoicing firms (for example, for emergency plumbing work) and as a result the Treasury is continuing to engage with stakeholders to make a decision on whether to exempt domestic premises suppliers that are brokering BNPL agreements from the requirement to obtain credit broking permissions.
• BNPL firms in the Temporary Permissions Regime (TPR) provided with some clarity. After the BNPL regulations take effect, the Treasury will put in place a TPR to enable unauthorised firms to continue their BNPL activities until their application for full authorisation has been processed. The Treasury has confirmed that these TPR firms will be able to approve their own financial promotions for onward communication by their unauthorised merchant partners. However, BNPL firms in the TPR will not be able to approve financial promotions created by unauthorised merchants. TPR firms will also be exempt from both the senior managers and certification parts of the Senior Managers and Certification (SMCR) regime.
• BNPL firms may also be subject to Payment Services Regulations 2017 (PSRs). The Treasury has confirmed that BNPL firms offering products that are also payment services must comply with the PSRs. To prevent duplication and ensure the BNPL rules remain proportionate, the FCA may impose rules disapplying BNPL information requirements where information has already been provided in compliance with the PSRs.

Next steps

The draft BNPL legislation will be considered by Parliament, and a final version will be enacted. There will be a 12-month transition period from the point at which the amending legislation is made for the FCA to draft, consult on, and finalise its rules for BNPL lending. During this period, firms will be able to familiarise themselves with the new regime, and to make the necessary changes to their business models ahead of "regulation day" (the day on which regulation commences) which is expected to be around mid-2026. The FCA will publish its consultation on its proposed rules for regulating BNPL shortly. As part of that consultation, the FCA is expected to set out its planned timelines and what firms should do to prepare for regulation.

It is certainly welcome news that the Treasury has continued to take the merchant-friendly approach to BNPL regulation, and may extend this approach to domestic premises suppliers in due course. The shift to FCA-based rules for BNPL regulatory requirements, alongside the proposals to modernise CCA regulation, should provide a more proportionate and flexible regulatory environment for BNPL firms. BNPL providers should ensure they keep abreast of the FCA's consultation, which will provide a further opportunity for firms to help shape the rules that will apply under the new regime.