Emma Reynolds, the economic secretary to the Treasury, highlighted the necessity of these regulations to safeguard consumers while providing BNPL firms with the certainty needed for investment and growth.

With over 10 million users in the UK, the BNPL market has expanded significantly, raising concerns about rising debt levels and the lack of strict oversight.

The legislation will also reform the 51-year-old Consumer Credit Act, creating a modern framework that better suits contemporary borrowing practices.

Major BNPL providers like Klarna have expressed support for the new regulations, emphasizing their commitment to consumer safety and collaboration with the FCA.

Research indicates that nearly 25% of BNPL loans incurred late repayment fees in the last six months of 2023, underscoring the need for these regulatory changes.

The UK Government is set to introduce new legislation aimed at regulating buy now, pay later (BNPL) schemes to protect consumers from excessive debt.

Consumer advocate Tom MacInnes from Citizens Advice pointed out the severe consequences of unregulated BNPL usage, including struggles with debt and essential bills, urging prompt action from the Financial Conduct Authority (FCA).

The proposed legislation, which follows a consultation launched in October 2024, will require BNPL companies to conduct upfront affordability checks to ensure borrowers can manage repayments.

These checks aim to prevent consumers from falling into debt traps by assessing their ability to repay before loans are issued.

Additionally, consumers will benefit from faster access to refunds and the right to file complaints with the Financial Ombudsman, aligning BNPL with existing credit regulations.

HM Treasury has mandated that BNPL firms adhere to consistent standards, including upfront checks to ensure repayment capability.

This initiative reflects a broader trend in financial services towards stricter oversight to safeguard consumers, particularly in light of the risks associated with BNPL products.