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With the use of buy now, pay later (BNPL) services increasing worldwide, authorities are working out how to ensure they are properly regulated and that consumers have an appropriate level of protection.

The BNPL sector has grown rapidly in recent years. According to the Financial Conduct Authority (FCA), for example, the  grew from £60m in 2017 to more than £13bn in 2024, and the regulator’s latest  found that 20 percent of UK adults, around 10.9m people, used BNPL in the year to May 2024.

According to the Reserve Bank of Australia (RBA), meanwhile, the  of BNPL transactions in the country during the 2022–23 financial year was around A$19bn, equivalent to approximately 2 percent of all card transactions.

This form of credit is particularly popular among younger demographics and is widely used in e-commerce.

BNPL offers convenience and flexibility, but many are concerned about over-indebtedness, insufficient affordability checks, weaker consumer protection compared with traditional credit and opaque fee structures or late payment penalties.

For example, a 2022  by the Australian Securities and Investments Commission (ASIC) found that 19 percent of BNPL customers showed two or more indicators of financial stress, such as cutting back on essential items or missing payments on other bills.

Calls for regulation have increased amid rising default rates and growing scrutiny from consumer groups.

As covered by 91����ԭ��, even BNPL players such as Clearpay and Klarna have expressed support for clear regulatory frameworks.

Key challenges 

Those seeking formal regulation of the BNPL space, including politicians and campaign groups such as Which? in the UK, are concerned about a number of features of the type of credit.

A major worry is that affordability and credit checks are often minimal or even lacking, meaning that loans are being extended to individuals who are ill-equipped to pay them back.

There is also a push for a greater degree of disclosure and transparency, including clearer communication of repayment terms, fees and penalties.

The concern here is that consumers do not fully understand what they are signing up for and may be caught out if they fail to make their payments on time.

Other critics have questioned how BNPL providers use consumer data for marketing and credit scoring, and have called for greater transparency in this area.

As ever, the challenge for regulators is to strike an appropriate balance between ensuring consumer protection and facilitating innovation.

The rapid growth of BNPL shows it is both popular and effective. In growth-focused jurisdictions such as the UK, regulators should avoid imposing excessively onerous requirements that could stifle a sector with the potential to disrupt consumer credit and support those who cannot access other forms of finance, such as credit cards.

Regulation around the world

The UK government is in the process of bringing BNPL within the regulatory perimeter. The FCA has long advocated for BNPL regulation, and under  passed in July 2025, the regulator will have oversight of third-party BNPL lenders.

It has proposed  for BNPL products, officially termed deferred payment credit (DPC), with a compliance deadline of July 15, 2026. 

From that date, BNPL providers will need to be authorised by the FCA or operate under a temporary permissions regime while their applications are reviewed. However, merchants offering credit directly to customers will remain outside the regulatory scope.

Under the terms of the regulation, BNPL providers will have to conduct mandatory affordability checks, improve their consumer disclosures, ensure that customers can access the Financial Ombudsman Service (FOS) for complaints and offer enhanced support for customers in financial difficulty. 

The EU is seeking to regulate BNPL under the revised  (CCD2), which includes an expansion of its scope to cover low-value and short-term credit, including BNPL. It also imposes stricter disclosure and affordability assessment rules.

Because BNPL services will be classified as credit under CCD2, late repayment fees and interest charges must comply with local annual percentage rate (APR) caps.

Providers will be obligated to consider factors such as income, repayment history, assets, liabilities and other financial commitments when onboarding customers.

They will also need to clearly communicate information such as costs, repayment terms and consumer rights to ensure that customers understand the risks and commitment involved in taking on this form of credit.

In addition, BNPL firms will be prohibited from engaging in exploitative practices such as misleading use of default options (such as pre-ticked boxes) and providing unsolicited credit to consumers without their explicit agreement.

Member states have until November 2026 to transpose CCD2 into national law.

The regulation of BNPL services in the US is in flux, with a mix of federal and state-level rules, but a stated unwillingness on the part of national authorities to intervene.

As covered by 91����ԭ��, the Consumer Financial Protection Bureau (CFPB) announced in May 2025 that it would not be enforcing its own BNPL rules, which had been introduced under the Biden administration.

The agency’s withdrawal from hands-on regulation has been a feature of the regulatory landscape in the US since President Trump took office, and the disavowal of its BNPL rules is one of the more high-profile manifestations of the trend.

States such as California already require BNPL providers to register as lenders or loan brokers, and in July 2025, New York launched a consultation on BNPL. 

The New York State Department of Financial Services (NYDFS) said it was aiming to understand providers’ business models, fee structures and underwriting practices, as well as how limits on fees and interest may affect BNPL operations more broadly. 

In November 2024, Australia introduced legislation regulating BNPL products as credit, with providers required to obtain an Australian credit licence.

The  extended the application of the National Consumer Credit Protection Act 2009 (the Credit Act) to BNPL products, and established “low-cost credit contracts” (LCCCs) as a new category of regulated credit.

Under the legislation, LCCCs are arrangements for the provision of credit to consumers on a low-cost basis, meaning most BNPL contracts will be regulated as LCCCs.

For BNPL providers, the key obligations imposed under the law include responsible lending obligations (RLO) requiring them to develop and review a written policy on assessing whether their services are suitable for the consumer.

They are obligated to make reasonable inquiries as to the consumer’s requirements and objectives, as well as their financial situation.

Impact of regulation

BNPL providers will need to adapt to the new regulatory frameworks, which will change the way they operate in several ways.

Their compliance costs are set to rise as more markets introduce formal regulation and they are obligated to provide new services and increased reporting.

In addition, the need for licences in multiple jurisdictions will impact operating models, as will the increased scrutiny of marketing, disclosures and late fee structures.

Stricter affordability checks will add friction to the onboarding process, and lead providers to deny credit to more consumers, potentially affecting the growth of their businesses.

The challenge of adding a layer of compliance could see BNPL firms come under pressure to diversify their business models. Some may partner with regulated entities such as traditional banks and credit issuers that have experience of the kind of regulatory requirements being imposed.

Over the coming months, firms should monitor developments as regulators in the UK and the EU finalise and implement BNPL rules, and the US decides whether to introduce federal BNPL regulation or maintain a state-led model.

We may see a rise in enforcement activity by regulators such as the FCA and ASIC as they seek to emphasise the need for strict compliance.

In time, this could lead to consolidation in the sector as smaller firms, or those less able to comply with the regulation, either exit or merge.

Looking further ahead, regulators may consider bringing BNPL services under broader open finance and credit reporting frameworks.

For now, organisations should be clear on the rules that apply to them and take appropriate steps to ensure they are in compliance.