UK Treasury closes consultation on BNPL regulation

On January 6, the UK Treasury closed a public consultation on Buy Now, Pay Later (BNPL), with the clear intention of integrating BNPL products into a regulated legal framework.

Benefiting from a statutory exemption for short-term non-credit loans, BNPL products are still unregulated in the UK.

In short, BNPL products allow consumers to make a purchase, enjoy the good or service, and pay for it later. Refund is where BNPL is different from credit cards – payment is made in equal installments over a specified period of time, usually up to four months, with no interest as long as the consumer pays on time.

However, missing a payment or spreading the cost over a longer period can result in late fees, penalties, or high interest rates. Interest rates are also tied to the borrower’s credit risk – riskier consumers can get a BNPL loan, but at a higher interest rate.

A recent report commissioned by the UK government identified a number of areas of potential harm to consumers if the BNPL market continues to grow, as expected, while remaining unregulated.

As such, this consultation aims to gather information from relevant stakeholders and the public, not to decide whether to regulate or not, as this is most likely to happen, but rather to define the scope of the regulation. regulation and ensure that this measure is proportionate to achieve its main objective of protecting consumers.

Although the initial consultation was conducted by the UK Treasury, if that institution decides that this area needs to be regulated, it will delegate responsibility to the Financial Conduct Authority (FCA), which will set the rules.

Interestingly, any potential regulation on BNPL should be carefully drafted not to include other non-financial organizations that rely on the above-mentioned exemption to offer deferred payment for goods or services, such as health services or gyms.

Based on the questions posed in the consultation document, some of the areas where regulation is likely are:

Business model

There are many questions and concerns about how BNPL works, including the parties involved in transactions, the average number of transactions per consumer, the amount spent per transaction, and new BNPL models that may be developed in the future.

The answers to these questions can offer regulators enough evidence to introduce limits on the amount of transactions that a client could undertake during a certain period of time.

Client education

Questions about the differences between long-term and short-term credit suggest that regulators worry that consumers do not fully understand the differences between the two – or do not understand the potential risks of incurring late payments.

This could prompt regulators to establish new requirements for BNPL companies to inform consumers of potential risks, perhaps adding additional boxes when ordering to ensure the consumer is fully informed.

Contract definitions

Any potential regulation on BNPL may need to draw a legal boundary between the different types of short-term interest-free credit. While there are many similarities between BNPL and other short-term loans, there will likely be a new definition that will determine which regulations they fall under.

This new definition should also include possible modifications to BNPL products, ensuring that new products do not benefit from the legal exemption enjoyed by other short-term interest-free loans.


Although BNPL companies must follow certain rules from the UK Advertising Standards Authority, the consultation suggests that BNPL companies may be subject to more stringent rules set by the FCA under the financial promotions scheme.

As this requirement could place an unnecessary burden on traders to seek approvals for promotions of BNPL products, which would ultimately benefit large traders, it is not clear whether this point would be included in the regulation.


As BNPL is currently unregulated, there is no obligation to perform credit assessments as part of the onboarding of new clients. However, to protect consumers against high debt levels, new regulations on BNPL are likely to apply current FCA rules on solvency to these agreements.

It’s hard to predict at this point how light or cumbersome the regulation will be, but the responses to this consultation – which could be released in the coming weeks – could give us a clue on the most pressing issues. In any case, regulators should propose new rules in the first half of the year, given the urgency of this issue for the government.



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