New Buy Now, Pay Later rules give Klarna, PayPal and Clearpay users stronger legal protections from today

Millions of people using Buy Now, Pay Later services such as Klarna, PayPal and Clearpay are covered by new consumer protection rules from today (Wednesday 15 July), bringing the products into line with other forms of regulated credit for the first time.

The changes mean shoppers will benefit from stronger legal rights if something goes wrong with a purchase, while lenders must now carry out affordability checks before offering Buy Now, Pay Later (BNPL) credit.

The reforms affect consumers across the UK, including Northern Ireland, and are intended to better protect people from taking on debt they cannot afford while preserving access to interest-free instalment payments.

What changes for shoppers?

From today, Buy Now, Pay Later providers fall under the regulation of the Financial Conduct Authority (FCA).

Previously, people using BNPL products often had fewer protections than someone paying with a credit card or taking out a personal loan.

Under the new rules:

• providers must assess whether customers can realistically afford repayments before offering credit;

• consumers buying faulty goods will have clearer legal rights to seek refunds;

• customers experiencing financial difficulties should be directed towards debt advice before debt collection action is considered; and

• unresolved complaints can be referred to the independent Financial Ombudsman Service.

The government says the measures are designed to ensure BNPL remains a useful way to spread the cost of purchases without exposing consumers to unnecessary financial risk.

Designed to tackle growing use of BNPL

Buy Now, Pay Later services have become increasingly common during online shopping, allowing customers to spread payments over several weeks or months without paying interest.

While many people use the products responsibly, consumer groups and debt charities have raised concerns that some shoppers have accumulated multiple agreements without fully appreciating they were taking on debt.

The UK Government first committed to regulating the sector in 2024, with legislation passed the following year paving the way for today’s changes.

Government says protections now match other credit products

Economic Secretary to the Treasury Rachel Blake said the reforms deliver a long-promised improvement in consumer rights.

“We made a clear promise to give consumers the protections they deserve and today we are delivering.

“It is not fair that people using these products have had fewer rights than if they had paid by credit card. These new rules protect the consumer — with proper checks before credit is offered, real rights when things go wrong, and support rather than pressure if someone falls into financial difficulty.”

Consumer groups welcome new safeguards

MoneySavingExpert founder Martin Lewis, who has long campaigned for regulation, said the biggest changes would be felt when problems arise rather than during everyday purchases.

“Buy Now Pay Later done right, isn’t wrong. It’s fine for those who understand what they’re doing and make an active, one-off decision to use it to spread the cost over a few months interest-free.

“Yet too many don’t do that. They fall for BNPL’s ubiquity, use it constantly and build up a bank of unaffordable debt.

“Most people won’t notice any difference. These changes are primarily to ensure BNPL is sold responsibly and that there are protections for when things go wrong.”

Consumer organisation Which?, debt charity StepChange and the Financial Conduct Authority also welcomed the introduction of regulation, saying the changes should improve transparency, strengthen affordability checks and provide greater support for consumers who encounter financial difficulties.

What it means for Northern Ireland shoppers

Anyone using Buy Now, Pay Later services from today will still be able to spread the cost of purchases in much the same way as before, but providers must now meet the same regulatory standards expected of other consumer credit products.

For most shoppers, the checkout process is unlikely to feel any different. The biggest changes will be seen behind the scenes, with stronger affordability checks, clearer consumer rights if purchases go wrong and access to the Financial Ombudsman Service if disputes cannot be resolved.

The government says the reforms are intended to strike a balance between allowing consumers to continue using interest-free instalment plans while ensuring they are better protected from unaffordable borrowing and given the same safeguards available with other forms of credit.