Last year marked the 50th anniversary of the passage of the Consumer Credit Act 1974. The way people interact with their finances and the consumer credit market is dramatically different today and the transformation in 50 years has been vast. Digital technology has transformed how people use and take out credit. With that, many new challenges and opportunities have emerged, such as the rapid emergence and growth of buy-now, pay-later products.
Today the Government have announced a package of measures designed to future-proof the regulatory framework of the UK’s £200 billion-plus consumer credit market. These measures aim to allow businesses to innovate effectively and ensure that consumers have access to useful and affordable credit products, and clear rights where things go wrong.
BNPL products have become increasingly popular with many UK consumers. When offered responsibly, they can serve as a useful and affordable credit option. However, these unregulated products carry certain risks, as highlighted in particular by the 2021 Woolard review.
Last October the Government published a consultation setting out their plans to address this by bringing the sector into regulation.[1] Under the proposals, BNPL firms will need to be authorised by the Financial Conduct Authority and will be subject to ongoing supervision. These proposals aim to ensure that people using BNPL products receive clear information, avoid unaffordable borrowing, and have strong rights when issues arise. The Government’s approach will maintain access to these popular products while adding crucial safeguards.
The Government have today published our consultation response, summarising the feedback we received and setting out our final position on the proposals.[2] Respondents expressed a strong desire for action in this area and were generally supportive of the proposed regulatory regime. The Government have also laid the Draft Financial Services and Markets Act 2000 (Regulated Activities etc.) (Amendment) Order 2025—the affirmative procedure statutory instrument needed for bringing BNPL products into regulation.
Once the SI is approved by Parliament, the FCA will proceed to draft and consult on its rules for BNPL lending. This will give interested parties the opportunity to comment on the rules before they are finalised. Regulation is then expected to come into force in mid-2026.
Alongside this, HM Treasury is also publishing its consultation on phase 1 of CCA reform.[3] The CCA has served the UK well for many decades and continues to provide important protections, but it has failed to keep up with developments in the market and the changing ways in which people engage with credit. As a result, the regime is confusing and burdensome for firms, stifling innovation and is not delivering the best outcomes for consumers.
The consultation sets out the Government’s proposals to move much of the CCA out of regulation so that it sits in the more agile rulebook of the FCA. The proposals aim to create a modern, agile and proportionate regulatory regime for consumer credit that is equipped to provide robust protection for consumers. A further consultation will follow in due course, covering rights and protections, scope and definitions.
Overall, reforming regulation for firms while ensuring robust consumer protection will unlock the full potential of the consumer credit sector. This is an important milestone in delivering the Government’s plan to go further and faster to drive economic growth through the plan for change, by supporting our consumer credit sector to innovate and become a driving force in delivering economic growth and enhancing competitiveness.
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