
UK and U.S. economic prosperity deal takes effect – Key takeaways
The FCA has published details of the ‘proportionate’, ‘flexible’ and outcomes-focused conduct regime it is proposing for newly regulated BNPL agreements. These include a pragmatic approach to documentation and a focus on complying with overarching requirements under the Consumer Duty rather than following the heavily prescriptive and inflexible approach for other regulated agreements under the CCA. Lenders will still need to conduct creditworthiness assessments and the FCA acknowledges that availability of credit may be tightened for some, but overall the proposals ought to be welcomed by borrowers and lenders alike.
The FCA has published its consultation on detailed rules which will apply to regulated Buy-Now—Pay-Later (BNPL) firms. In the current spirit of growth and innovation, the FCA is steering firmly away from introducing swathes of new rules but is instead relying on the Consumer Duty and outcomes-based regulation across a number of areas. Whilst certain new rules are being proposed (particularly around information requirements), the FCA is deliberately giving firms flexibility in how it delivers and presents information to maximise customer engagement.
The FCA is also proposing that some parts of the FCA handbook will apply unchanged to BNPL firms, including those on creditworthiness and affordability (CONC 5.2A) and dealing with customers in financial difficulties (CONC 7).
Nevertheless, the FCA's shift in approach away from prescriptive rules and towards outcomes-based regulation is an exciting and promising step. Whilst this is limited to BNPL firms for now, it could signal a broader change in its approach to financial services regulation, particularly for consumer credit.
The new regime will take effect from 15 July 2026 (Regulation Day), with a Temporary Permissions Regime (TPR) in place for those firms who don't currently hold the necessary permissions.
See our previous article on HMT's final response to the its October 2024 consultation here, and our thoughts on the October 2024 consultation itself here: Buy-Now Pay-Later: UK Government publishes updated proposals – now over to the FCA
Earlier this year, HM Treasury confirmed its approach to the regulation of BNPL lending in its response to the October 2024 consultation. On 19 May 2025, Government also laid draft legislation before Parliament.
Our previous article on HMT's final response to the FCA's October 2024 sets out the key legislative and policy aspects of the BNPL regime. Whilst that was a useful indicator on the direction of travel, the FCA's consultation provides considerably more detail on the rules which BNPL firms will have to follow and means that those firms can start preparing.
The FCA makes clear that it intends to rely heavily on the Consumer Duty (and in particular the consumer understanding and support outcomes) as a core part of its outcomes-based approach to regulating deferred payment credit (DPC). That means there are certain gaps where there are no specific CCA or CONC provisions which apply. The FCA has considered those gaps and attempted to fill them in a proportionate way. As a result, there is a marked increase in flexibility and move away from prescriptive rules-based requirements, which is likely to come as a welcome change to the industry.
Unfortunately the consultation doesn’t give an indication of timings or next steps on the broader CCA reform which was consulted on separately earlier this year (see our previous article here). It does acknowledge that certain issues in the BNPL consultation overlap with the CCA reform proposals and simply says that the FCA will “consider the impacts of its approach on the DPC market to help inform our future policy development as CCA reform progresses.” This may suggest that CCA reform is being pushed out considerably, since the impact on the DPC market will not be seen until some time after implementation in July 2026.
That said, the proposed outcomes-based approach to the BNPL regime is promising and could suggest that a more flexible and future-friendly CCA regime is in the works.
The FCA is deliberately not adopting the CCA information requirements, in order to allow for a more proportionate and tailored regime for DPC agreements. It is instead proposing new rules designed to ensure customers understand the agreement and are alerted when the something happens which could harm their financial situation. It is also eager to offer flexibility in how information is delivered to allow for ‘innovative and engaging’ ways of communication.
The information is similar to that required in a pre-contract credit information document under the CCA. It includes the interest rate, amount of credit, details of repayments, the cash price of the goods, consequences of missing payments and information on certain rights.
The FCA is proposing some modifications to these requirements where DPC agreements are entered into orally at a distance (like over the phone). In that case, the key product information can be given orally pre-contract, but both the key and additional information must still be provided in a durable medium after the agreement is made.
The FCA sets out that it wants firms to consider how to give customers information during the life of the agreement to make sure they understand how the product works and how to reduce any associated risks. They point out that some firms send email, SMS or push notifications to remind customers about upcoming repayments, whilst others include useful information in-app.
Interestingly, given the range of different DPC models, the FCA concludes that it would be disproportionate and unnecessary to introduce new rules for providing information during the life of a DPC agreement (though it will publish guidance to remind firms of their obligations under Consumer Duty). It is clear though that the FCA expects borrowers to receive information at appropriate points during the customer journey which equips them to make informed decisions. This outcomes-based approach is an interesting move away from the prescriptive information requirements contained in the rest of the CCA and CONC regime.
Whilst the FCA proposes to apply CONC 7 to DPC agreements (more on that below), it also proposes to introduce new rules requiring lenders to communicate with a customer as soon as possible after a missed payment and before taking steps to terminate, demand early repayment or enforce security.
The FCA is not proposing to prescribe the content of these notices, but it does expect lenders to ensure that customers receive:
Again, the FCA emphasises that firms should remember their Consumer Duty obligations and ensure they are testing their communications to make sure they support good outcomes. Lenders also need to take into account various CONC 7 requirements on communicating with customers in arrears.
The FCA is proposing to apply the existing CONC 5.2A to DPC lending. It makes clear that this means that a CONC-compliant creditworthiness assessment is needed for each new agreement, even for low value credit. The FCA also proposes that, since the CCA definition of ‘small agreement’ is being amended to exclude DPC agreements, the CONC rules should apply to agreements where the credit is less than £50.
This approach may come as a surprise to some, who expected that a lighter touch or tailored regime would step in. However, the FCA explains that the current regime was designed to cater for a wide range of credit products and already provides for a proportionate approach to be taken. For example, CONC 5.2A.20R sets out that the scope and extent of a creditworthiness assessment should be proportionate to the individual circumstances of each case, taking into account the type of credit and how much it costs.
The FCA even acknowledges that interest-free low-value DPC agreements is likely to be lower risk, though it also reminds firms that many DPC customers could be vulnerable and lenders should consider how to factor that into their approach. It also suggests that successive lending of small amounts might not require as full an assessment as the original advance (but there is a risk the information originally captured may no longer be valid).
The FCA suggests that CONC 7 should apply to DPC agreements. Broadly, this requires firms to deal with customers in (or approaching) arrears with forbearance and due consideration. Firms must take appropriate measures to help struggling customers and have clear, effective policies and procedures in place.
Given that most BNPL firms likely have procedures in place already for customers in financial difficulties, applying CONC 7 may not be a heavy uplift.
The FCA and FOS are proposing to:
The FCA expects most users of regulated DPC to be eligible complainants, so doesn’t propose to make any amendments to the rules in DISP 2.7
FOS case fees are currently £650 per complaint. The FCA consultation points out that if the complaint is closed other than as a change in outcome in favour of the consumer, the FOS will reduce that case fee to £475. But with the average value of a BNPL transaction falling below £100, BNPL firms could be still facing disproportionate costs when dealing with complaints. Firms will no doubt be disappointed to learn that the FCA consultation doesn’t propose to reduce these case fees. Instead, it merely says that the FOS will consult on its case fees for 2026/27 as part of its plan and budget at the end of the 2025.
The FCA does acknowledge in its cost benefit analysis there is a risk that this could lead to firms exiting the market. But it concludes that it doesn’t think this is likely, as the burden to complainants is relatively high compared to the potential reward. Similarly, the incentives are likely to be insufficient to drive claims management company activity.
Once implemented, the FCA intend to measure the success of the new regime by collecting data from the Financial Lives Survey and regulatory returns, as well as its normal supervision and authorisation activities. It will also monitor FOS complaints to understand how the proposals are affecting customers.
The TPR is for firms who don’t currently hold the necessary consumer credit permissions to continue operating until the FCA determines their application for authorisation.
The FCA has confirmed that:
The FCA is proposing that the eligibility requirements for the TPR will be where a firm:
This means that firms who started DPC lending after 15 July 2025 will not be able to register for the TPR, and will have to apply for the relevant permission instead. This means they won’t be able to undertake DPC activities from Regulation Day until they become authorised.
Firms who fulfil the above requirements will then be required to provide:
The FCA also confirms that merchants who split lending and retailing across two or more separate legal entities will need to ensure that the lending entity is registered for the TPR, or has stopped DPC lending operations before Regulation Day.
Notification for registration for the TPR will open 2 months before Regulation Day (15 May 2025) and will close 2 weeks before Regulation Day – so there will be an approximately 5 or 6 week window for firms to register. But the FCA says it will publish directions relating to the process of registration in due course, which will include confirmation of the dates the notification period opens and closes.
Firms won’t be able to carry out new DPC lending on or after Regulation Day where they don’t apply for the TPR or don’t have the relevant permission already. However, the FCA confirms that those firms will be able to continue servicing DPC agreements that were entered into before Regulation Day (as those agreements will remain exempt).
Firms operating under the TPR will be exempt from both the SM&CR regimes. The consultation paper confirms that firms which are already authorised for other activities will not be subject to the SM&CR regime in respect of their DPC activities.
Once firms in the TPR become authorised for DPC activities, the SM&CR regime will apply.
Firms in the TPR will be able to apply for full authorisation within a 6-month window following Regulation Day (so until January 2027).
The FCA will assess firms’ applications in the usual way, determining applications within 6 months (if complete) or 12 months (if incomplete).
The Government’s legislation establishes a Supervised Run-Off Regime (SRO) for DPC lenders that exit the TPR without full authorisation.
This means that DPC lenders that entered into newly regulated credit agreements while in the TPR would be able to retain temporary permission for Article 60B(2) activities (exercising, or having the right to exercise, the lender’s rights and duties under a regulated credit agreement) for up to 2 years.
Authored by
Liz Greaves, Jen Staniforth, James Black