FCA consults on draft rules for buy-now, pay-later credit in the UK

The Financial Conduct Authority (FCA) has published its consultation on draft rules which will apply to "buy now, pay later" products – now defined as "deferred payment credit" (DPC). The publication on 18 July followed HM Treasury finalising its own consultation on the legislative framework for buy now, pay later in May. HM Treasury has delegated to the FCA the task of drafting bespoke rules for DPC lending.

New FCA rules

Legislative changes to the Consumer Credit Act 1974 (CCA) have resulted in pre- and post-contractual disclosure requirements being disapplied to DPC, so the FCA is proposing new rules which:

• Disapply the requirement to provide an adequate explanation of the credit under FCA Handbook rules at the Consumer Credit Sourcebook (CONC) 4.2.5R.
• Mandate the provision of "key product information" (which is largely information specific to the particular agreement being entered into) and "additional product information" (which is more generic information) at pre-contract stage in an easily accessible manner. There will be no prescribed form and it will therefore be up to lenders to decide how to communicate this information, taking into account their obligations under the Consumer Duty.
• Mandate the provision or making available of a copy of the DPC agreement once it's been made (in a durable medium).
• Require the lender to notify the borrower of missed payments and provide specific information about the missed payment (but not in a prescribed form).
• Require the lender to give the borrower reasonable notice before enforcing or terminating a DPC agreement.

At this stage, the FCA is not proposing to introduce any rules which require lenders to provide information to customers where those customers have not missed a payment and are not in financial difficulty (for example, regular statements). Instead, the FCA is encouraging lenders to consider the information needs of their customers, in line with expectations under the Consumer Duty, and communicate with them appropriately. Given that most DPC lenders already have sophisticated apps that give borrowers the ability to view outstanding agreements and balances, this is likely to mean business as usual for them.

In its draft supporting guidance, the FCA has also reiterated its view that information is made available to a customer only if the customer can reasonably be expected to know how to access it and be able to access it. There are no specific rules on how to do this as it will depend on the context and channel of communication – the FCA's rules are intended to be technology neutral. The FCA has, however, noted that information is unlikely to be made available if it is not clearly and prominently signposted or if it obscured or provided alongside too much other information.

Application of existing rules

The FCA intends to apply the rest of its handbook rules to DPC lenders, largely without changes. Lenders will therefore need to be prepared to comply with (among other things) the Consumer Duty, rules in CONC relating to marketing and creditworthiness and affordability checks, complaints rules in DISP (although complaints reporting won't apply to firms with a temporary permission), systems and controls-related rules in SYSC, and reporting requirements in SUP (including both regular reporting and event-driven reporting).

Temporary permissions regime

Lenders without existing lending permissions must enter the temporary permission regime (TPR) in order to continue lending under DPC agreements.

Lenders will only be able to enter the TPR if they:

• are carrying on a DPC activity on 15 July 2025;
• have notified the FCA during the notification window (15 April to 30 June 2026); and
• have paid the relevant registration fee (which the FCA will consult on).

Firms wishing to enter the TPR will need to provide:

• evidence they were carrying on DPC activity on 15 July 2025;
• their firm’s details; and
• details of controllers and senior managers.

The TPR will start on 15 July 2026 (known as "Regulation Day") and firms will be required to attest that, from that date, they will comply with the FCA's rules.  Firms in the TPR will then have until January 2027 to apply for authorisation.  The usual timeframes for assessing applications will apply – that is, a decision will be made within six months for complete applications and within 12 months for incomplete applications. 

Other key features of the TPR include:

• The Senior Managers and Certification Regime will not apply to firms in the TPR that are not authorised for another activity.
• There will be a supervised run-off regime for DPC lenders entering the TPR, who enter into DPC agreements and then subsequently exit before becoming authorised. Those lenders will retain a temporary permission to service DPC agreements for up to two years.

Once a firm is authorised, it will exit the TPR. 

Osborne Clarke comment

It is great to see that the FCA has thought very carefully about the potential impact of the new regulatory regime on the market and, overall, we expect the effect to be a positive one. The market's original concerns were heard that forcing buy-now, pay-later lenders to comply with out of date consumer credit laws risked killing a product model that consumers find useful. What we have ended up with is a flexible regime aimed at enabling firms to compete on transparency, simplicity and customer journeys.

These changes will be of interest not just to existing buy-now, pay-later providers but also to regulated firms offering regulated point-of-sale credit under regulated agreements which do not currently satisfy the DPC definition. The much lighter touch regulatory regime for DPC products may be an attractive way to win new customers and so we may see more lenders bringing DPC products to market. We also anticipate increasing innovation in terms of combining DPC with payment account offerings and use of payment systems.

Perhaps one for CCA reform, but we would still like to see the ability for firms offering products that are to all intents and purposes the same as buy now, pay later – but subject to running account credit agreements – to be able to rely on the same light-touch regime.

Any firms successfully applying for authorisation to offer DPC will have a limitation on their licence which effectively limits their activity to DPC. Although firms planning to enter the TPR will already be preoccupied with adjusting their business model/reporting capability to align with FCA expectations, it is also worth taking the time to decide now whether they want to apply for full authorisation while in the TPR, to save having to apply to have the DPC limitation lifted at a later stage as they develop their product suite.