The Financial Conduct Authority (FCA) has published Consultation Paper CP25/23, Deferred Payment Credit (unregulated Buy Now Pay Later): Proposed Approach to Regulation. This paper seeks feedback on the FCA’s proposed regulatory framework for Deferred Payment Credit (DPC), commonly referred to as Buy Now Pay Later (BNPL) products. The consultation is open until 26 September 2025, marking a pivotal step in bringing this fast-growing segment of consumer credit within the regulatory perimeter.
What Is Deferred Payment Credit?
Deferred Payment Credit refers to interest-free credit products that allow consumers to repay purchases in 12 or fewer instalments over a period of up to 12 months. These products are currently exempt under Article 60F(2) of the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 (RAO), which means they fall outside the scope of FCA regulation. This exemption has led to concerns about consumer harm due to lack of clarity in terms and affordability risks.
CP25/23 proposes removing this exemption and applying the Consumer Credit sourcebook (CONC) to DPC products, thereby enhancing consumer protection, promoting responsible lending and establishing a consistent regulatory framework.
Why Is CP25/23 Important?
The FCA is responding to mounting concerns about market integrity and consumer welfare in the expanding DPC sector. While these products offer convenience, evidence suggests that some consumers are using multiple DPC agreements simultaneously or borrowing beyond their means, increasing the risk of financial distress.
To mitigate these risks, the consultation proposes a robust regulatory approach that includes:
- Applying CONC 5 rules on responsible lending and affordability assessments.
- Enforcing CONC 3 on financial promotions, to prevent misleading or irresponsible marketing.
- Requiring clear communication of key terms under CONC 4, including repayment obligations, fees and consequences of default.
- Establishing conduct rules under PRIN, including the Consumer Duty (PRIN 2A), which obliges firms to act in good faith and deliver fair outcomes for retail customers.
Additionally, the FCA proposes integrating DISP rules for complaint handling, ensuring access to the Financial Ombudsman Service (FOS) and timely resolution of disputes.
Insights from Occasional Paper No. 69
Alongside the consultation, the FCA released Occasional Paper No. 69: Distress Deferred? The Impact of Buy Now Pay Later Credit on Consumer Indebtedness and Arrears. This research highlights growing concerns that some consumers use DPC to finance non-essential purchases, contributing to over-indebtedness.
A key finding is that a significant proportion of DPC users experience repayment difficulties and may rely on other forms of credit to meet obligations, reinforcing the need for formal regulation and consumer safeguards.
Enhancing Consumer Protection and Market Confidence
The proposed framework seeks to balance innovation with regulation by ensuring DPC providers meet the same standards as other regulated lenders. This includes:
- Conducting appropriate affordability checks.
- Ensuring transparency in product terms.
- Offering robust complaint-handling procedures.
- Avoiding exploitative marketing tactics.
These measures aim to foster a credit environment where innovation does not compromise consumer protection, and where firms are incentivised to treat customers fairly.
Next Steps for Stakeholders
The consultation period closes on 26 September 2025. Stakeholders, including DPC providers, consumer advocacy groups and financial advisers, are encouraged to submit their feedback to help shape the final regulatory framework. This is a critical opportunity to influence how the DPC market evolves under formal oversight.
How Complyport Can Help
As the FCA moves towards regulating DPC products, firms operating in the BNPL space will need to ensure full compliance with the proposed regulatory framework. Complyport offers a range of services to support firms throughout this transition:
- Regulatory Permissions and Authorisation Support: We guide firms through the FCA authorisation process, helping them obtain the appropriate permissions for offering regulated consumer credit products, including variations of permission and Part 4A authorisations.
- Regulatory Perimeter Assessments: Unsure whether your current DPC offerings fall within scope? Our team conducts detailed perimeter assessments to determine your regulatory obligations under the revised framework and advises on necessary structural adjustments.
- Consumer Duty Gap Analysis and Implementation: With the proposed application of the FCA’s Consumer Duty (PRIN 2A) to DPC products, we help firms assess their current arrangements and implement policies to meet the FCA’s four key outcomes for retail customers.
- Compliance Framework Design and Documentation: We assist in building tailored compliance frameworks, including policies and procedures for affordability assessments, creditworthiness, complaints handling and financial promotions, ensuring alignment with the CONC and DISP sourcebooks.
- Financial Promotions Review: Our experts review your DPC marketing materials to ensure they are fair, clear and not misleading, in line with CONC 3 and the FCA’s guidance on financial promotions.
- Training and Awareness: Complyport offers targeted training for staff on DPC-specific compliance requirements, equipping teams with the knowledge to apply FCA rules in practice and identify areas of regulatory risk.
Contact us today to book a meeting with a Subject Matter Expert.
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