On 19 May 2025, HM Treasury published both its response to the consultation on Buy-Now, Pay-Later (BNPL) and its Phase 1 consultation on the Consumer Credit Act Reform as it takes steps to modernise the consumer credit regime in the UK, providing firms with the flexibility to innovate and bring new products to the UK market.
BNPL regulation
Currently, BNPL is largely unregulated and outside of the FCA's remit.
Broadly, the Government response to the October 2024 consultation on BNPL draft legislation largely confirms that the Government will proceed with its proposals set out in the consultation and the accompanying draft statutory instrument (SI). In summary, the existing BNPL exemption will continue to apply only to merchants that offer BNPL services, and third-party lenders will be brought into scope of regulation under a new regulated activity.
One of the major concerns raised in the consultation feedback is that merchants are out of scope of the regime, which could lead to an uneven playing field for third-party lenders that will be subject to the new regime. Respondents are concerned that large tech and e-commerce firms could start offering unregulated BNPL lending at a large scale. The Government's response acknowledges the concerns, and it will closely monitor this, but it currently has no evidence that merchants are seeking to provide BNPL lending at the same scale as third-party lenders.
Under the draft legislation, most merchants offering BNPL products as payment options will be exempt from the regulated activity of credit broking. The rationale for this decision is that BNPL is so integrated into the customer experience for e-commerce, it would be disproportionate for all merchants brokering these from third-party lenders to be authorised and regulated. This exemption will not extend to domestic premises sellers, although following the responses to the consultation, the Government will be reviewing this decision.
For more details on the proposals under the initial consultation, please see our article here.
Next steps
HM Treasury will legislate for the Temporary Permissions Regime (TPR) as soon as possible, and the FCA is expected to draft and consult on the TPR rules in due course.
The Government intends to lay the draft SI before Parliament shortly after publishing the response, and aims to introduce BNPL regulation as soon as possible. Once the SI has been made, the FCA has 12-months to draft, consult on and finalise its BNPL rules.
The new BNPL regulations are expected to enter into force around mid-2026.
Consumer Credit Act reform
HM Treasury's approach to the reform of the CCA is split out into two phases, with this first consultation paper covering Phase 1, and providing an indication of what Phase 2 will cover.
The Phase 1 consultation covers HM Treasury's vision for the CCA reform and proposals relating to information requirements, sanctions and criminal offences.
Phase 2 will focus more on the details covering consumer rights and protections, key definitions and the scope of the regulations.
The vision for the reform
The approach to the reform will mainly focus on what parts of the CCA and secondary legislation can be repealed and recast as FCA rules or are already addressed in existing rules, e.g. under the Consumer Duty, or Consumer Credit Sourcebook. This change will aim to align the consumer credit regime with modern regulations that focus more on outcome-based principles and are less prescriptive in nature. As is clear from the Phase 1 consultation, the underlying theme of the reform is one of mass repeals and a shift to a more streamlined approach.
The existing CCA is now considered to be too prescriptive, inflexible, overly complicated and disproportionate. This leads to consumer confusion and stifles innovation and growth in the industry. However, there is broad support for the consumer protections that the CCA provides, and the new regime will continue to deliver a high standard of consumer protection.
Information requirements
In line with the vision for the reform, the information requirements are considered too prescriptive and all the information provisions in the CCA and accompanying regulations will be repealed. The FCA will undertake a review and consult as necessary on any specific rules relating to information provisions that it considers should apply.
Of particular interest, the consultation draws attention to some of the technical matters that will be affected by the proposed reform. Among these, HM Treasury confirms that it is removing the existing exemption for "small agreements" under s17 CCA. The rationale for removing this exemption is so that the consumer credit regime aligns with BNPL regulation on the basis that BNPL lenders will not have an exemption for small agreements due to the large volume of BNPL lending that is under the £50 threshold.
Sanctions
The CCA contains several sanctions which apply where firms have failed to comply with certain information requirements (for example a sanction may apply which means that an agreement may be unenforceable). These do not apply generally to all information provisions and different types of sanctions apply to different provisions.
HM Treasury's view is that the sanctions are no longer required as the existing FCA regime and court process will achieve the standard of consumer protection required. By removing the protections under the CCA, the consumer credit regime will align with other financial services and provide that firms' liability under the regime is proportionate with the level of consumer harm.
In addition, feedback from industry stakeholders has shown that the CCA's inflexibility and automatic nature of the sanctions has meant that stakeholders prioritise compliance over consumer outcomes, which stifles development of new and beneficial financial products and services. This has also led to firms being restricted from using technological innovation to improve the customer outcome.
Criminal offences
Unlike the approach to information requirements and sanctions, HM Treasury is requesting views on potential options for how to proceed with the criminal offence provisions under the CCA. The consultation is requesting views on whether the reform should either:
- repeal the criminal offence provisions under the CCA, with the FCA providing any additional rules, where appropriate, which would track against each of the activities targeted by the criminal offence provisions. Under the FCA's existing supervisory and enforcement powers, the FCA will be able to take appropriate enforcement action, and unauthorised firms carrying on such activities would be in breach of the general prohibition under the Financial Services and Markets Act 2000; or
- retain some or all of the criminal offence provisions to continue to act as a deterrent against bad practice.
The consultation is looking to identify whether repealing the criminal offence provisions would still provide a strong deterrent and robust consumer protection.
Phase 2: looking forward
Under Phase 2 of the consultation, HM Treasury is also proposing to introduce the concept of four important cross-cutting themes which will be considered across both phases of the consultation. These cover:
- Islamic Finance;
- Green Finance;
- Technology; and
- Public Sector Equality Duty (PSED) and Environmental Principles Policy Statement (EPPS) Duty.
These cross-cutting themes are a positive sign for the market as it highlights HM Treasury's approach to increase the types of finance products UK firms can offer, enable innovation and retain strong consumer protection.
Next steps
The consultation closes for comments on 21 July 2025. The Government considers that this timeframe allows sufficient time for comment, whilst ensuring there is no undue delay to the reform.
Our comments
The BNPL consultation response is largely as expected and as set out in the initial consultation paper. It will be particularly interesting to see whether large e-commerce platforms will start to offer BNPL services, and how the regulators will adapt to this, if required.
In respect of the CCA reform, the Phase 1 proposals are positive and remove a lot of the burdensome provisions currently placed on firms in terms of information provisions, whilst intending to retain sufficient consumer protection. In terms of the proposed cross-cutting themes, we have seen cross-cutting rules previously in the context of the Consumer Duty which operate as overarching principles, and it will be interesting to see how they will be used in this context to enhance and overlay the proposed regulatory reform.
The prescriptive nature of the existing CCA rules together with defined sanctions means that the CCA regime is to a certain extent "self-policing". Failure to follow the clearly set out rules means an agreement is likely to be unenforceable. The move to outcome based principles will require firms and the FCA to make judgments on a number of matters, such as the adequacy of consumer disclosure, and is likely to lead to more supervisory (and possibly enforcement) intervention from the regulator. The Financial Ombudsman is also likely to face an increased workload, adjudicating on disputes between lenders and borrowers.