An ABC of DPC: FCA consults on new Buy Now Pay Later regime

On 18 July 2025, the FCA published a consultation paper (CP25/23) on its proposed approach to regulating what is commonly known as Buy Now Pay Later (BNPL) and which is now to be referred to as deferred payment credit (DPC). 

As a result of legislation published in May 2025 and made on 14 July 2025, from 15 July 2026 (Regulation Day), third party lenders offering DPC to finance purchases from a merchant will fall within the regulatory perimeter. This means they will need to become authorised and comply with the FCA rules and the applicable provisions of the Consumer Credit Act 1974 (CCA). 

In this article, we take a look at the FCA's proposed regulatory framework and what firms need to do ahead of Regulation Day.

What's in a name?

DPC refers to interest-free credit which finances the purchase of goods or services and is repayable in 12 or fewer instalments within 12 months. The FCA refers to the product as DPC as this is the name given to it in the legislation. BNPL, on the other hand, is already used in the FCA's Handbook to refer to regulated credit agreements with a product feature that gives the consumer a promotional period during which they are not charged interest. 

Which firms are in scope?

The new regime will apply to lenders offering DPC to finance purchases from a merchant (third party lenders). Merchants offering their own DPC agreements directly will remain exempt from regulation as will brokers for DPC. In addition, following industry engagement, the government has confirmed that it is making amending legislation to ensure that merchants who broker DPC agreements and who are classified as domestic premises suppliers (ie businesses offering to sell or agree to sell goods or services in people's homes) will remain exempt from regulation. The FCA is consulting on the basis that the amending legislation will be in place to coincide with the regulation of DPC.

There are a small number of exemptions to the DPC regime, which are set out in the legislation and will be reflected in the FCA's perimeter guidance.

FCA's approach to regulating DPC

DPC is the third most used consumer credit product in the UK by number of borrowers, after credit cards and overdrafts. Given its recent growth in the market, and potential to offer a smoother e-commerce customer journey, the FCA seeks to create a regulatory regime for DPC that secures an appropriate degree of consumer protection but which is also proportionate.

The FCA proposes to apply many of the same rules that currently apply to other consumer credit firms to DPC lenders. This means that firms will be subject to the FCA's High Level Standards, including the Consumer Duty, and specific chapters of the FCA's Consumer Credit Sourcebook (CONC). Tailored rules will only be created where necessary, to deliver appropriate consumer protection in the absence of certain CCA requirements. 

Main existing CONC provisions applicable to DPC

Source: Table 1 of CP25/23

Information requirements 

One set of CCA requirements that do not apply to DPC lenders are the information provisions of the CCA. This is therefore an area where the FCA is proposing bespoke rules and guidance. 

Information before agreement: The FCA is proposing new rules in CONC 4 to require DPC lenders to proactively disclose certain 'key product information' in a 'prominent way' before a consumer enters into a DPC agreement, including:

• The rate of interest (stating that it is 0%).
• The amount of credit to be provided under the agreement.
• The number and frequency of payments to be made under the agreement (with, where known, specific dates).
• The amount of each payment to be made under the agreement.
• The cash price of the goods or services being bought with finance under the agreement.
• The principal consequences of missing payments.

There is no requirement to proactively present additional product information to consumers, including the identity of the lender, explanations of s75/75A CCA protection and contractual terms and conditions. However, this information should be given or made available to the customer before entering into a DPC agreement. The FCA is also proposing to introduce a rule requiring firms to give a customer a copy of the agreement and both the key and additional product information in a durable medium immediately after entering into a DPC agreement, reflecting the requirements in s61A CCA.

Information during agreement: The FCA will not be introducing new rules for providing information during the life of a DPC agreement, given the range of different business models and concerns over proportionality. However, it is clear that the FCA expects borrowers to receive information at appropriate points during the customer journey, so they know how many repayments will be due and how much they still owe. The FCA is proposing to issue guidance to remind firms of their obligations on consumer understanding under the Consumer Duty.

Information on missed repayments: The FCA proposes to apply CONC 7 to DPC agreements, and to also introduce new rules requiring lenders to communicate with a customer as soon as possible after they have failed to make a contractual repayment under the DPC agreement. A firm will be required to give a customer reasonable notice before it intends to take steps to terminate a DPC agreement or enforce a term of the agreement by demanding earlier payment of any sum, treating any right conferred on the debtor by the agreement as terminated, restricted or deferred, or enforcing any security. The content of such notices will not be prescribed. 

Creditworthiness (CONC 5.2A)

The FCA proposes to proportionally apply the existing principles-based rules and guidance in CONC 5.2A to DPC lenders assessing their customers' creditworthiness. 

The FCA expects that DPC lenders will generally use automated methods to assess creditworthiness, and it comments on the increased use of innovative technology, such as AI and open banking, to support lending decision-making. As with other regulated credit agreements, DPC lenders should not focus entirely on efficiency savings at the expense of responsible lending decisions. For example, automated assessment processes should sufficiently consider affordability risk as well as credit risk. In relation to consumers who frequently use DPC, the FCA expects firms to probe the customer's financial position to form a view that repeat lending would be appropriate and sustainable. DPC lenders must also include the information they hold on their existing customers in their creditworthiness assessments.

Although the current creditworthiness rules (CONC 5.2A.2R(4)) do not apply to small borrower-lender-supplier agreements which are restricted-use credit (not exceeding £50), the government is amending section 17 of the CCA to exclude DPC agreements. Therefore, the FCA is proposing to apply its creditworthiness rules to small DPC agreements when they become regulated. The FCA explains that just over half of DPC agreements involve advances below this amount and although the sums are small in isolation, consumers can take out multiple loans from the same firm leading to higher aggregate balances, and the harms posed by unaffordable lending.

Dispute resolution

DPC lenders will need to comply with all aspects of the FCA’s complaints-handling rules (DISP) to ensure complaints are dealt with promptly, consistently and fairly, and eligible complainants will gain access to the Financial Ombudsman Service (FOS) for complaints about DPC agreements. 

Consumer Duty

The FCA intends to rely heavily on the Consumer Duty in its proposed regulatory framework for DPC. The Duty requires firms to deliver good customer outcomes. In particular, the FCA will expect firms to:

• Consider the needs of their customers and how they behave at every stage of the customer journey, including those customers with characteristics of vulnerability.
• Follow the rules and guidance relating to four areas that represent key elements of the firm-consumer relationship: the governance of products and services, price and value, consumer understanding and consumer support.
• Consider the impact of late fees when assessing whether their products offer fair value in line with the price and value outcome. 

SMCR

The FCA is proposing to not apply any of the conduct standards in its Code of Conduct Sourcebook (COCON) to firms with temporary permission (see below) until they are fully authorised and in scope. It notes the government's ongoing consultation that includes a proposal to remove the current certification regime from legislation, and to replace it with more proportionate arrangements in the Handbook.

DPC lenders will need to consider the flowchart in SYSC 23 Annex 1 1.2R to decide which category of SMCR firm they fall into. Their CEOs, Directors (or partners if appropriate) will be required to hold the relevant Senior Manager Functions.

Payment Services Regulations 2017

Firms with DPC business models that involve the provision of a payment service should consider whether they are also required to disclose relevant information to borrowers as required under the Payment Services Regulations 2017 (PSRs). However, the FCA is not proposing to make any specific rules for DPC lenders that are subject to the PSRs.

CCA reform

The government published a consultation on CCA reform in May 2025 - see our in depth analysis here. It has recognised that some of the issues involved in CCA reform overlap with those considered in its approach to DPC regulation. While the FCA's approach to DPC regulation is not intended to determine the direction of CCA reform, the FCA will consider the impacts of its proposed approach on the DPC market to help inform further policy development as the CCA reform progresses. 

Temporary Permissions Regime 

A Temporary Permissions Regime (TPR) will be in place for those firms which do not currently hold the necessary permissions, allowing existing DPC providers to operate while the FCA determines their application for authorisation. Notification for registration for the TPR will open two months before Regulation Day and will close two weeks before Regulation Day. 

To become registered for temporary permission, firms must provide the FCA with:

• Evidence that they were undertaking DPC lending on 15 July 2025 (the initial commencement date of the government's legislation).
• Their firm's details, which include their registered office, principal place of business and any trading names.
• Details of the firm's controllers and senior managers.

Firms will also be required to attest that from Regulation Day they will comply with FCA's rules.

If a firm has not registered for the TPR and does not have relevant permissions, it will not be able to carry out new DPC lending on or after Regulation Day. However, it may continue servicing agreements made before Regulation Day (which will preserve their unregulated status).

Firms that exit the TPR without authorisation will be to enter a Supervised Run-Off Regime (SRO). Under the SRO, DPC lenders that have entered into newly regulated credit agreements would be able to retain a temporary permission for the relevant regulated activity for up to two years.

Timeline

What DPC lenders should be doing now

DPC lenders will need to prepare for the new regulatory regime. Firms should:

• Assess whether they require FCA authorisation and prepare for the TPR registration window.
• Consider each stage of the customer journey for all of their products, how information will be shared with customers and how customer understanding will be evidenced (particularly where customers are vulnerable).
• Identify key policies and procedures that will need to be created/updated (including creditworthiness assessments and complaints procedures).

Conclusion

The FCA is taking a pragmatic and proportionate approach to DPC regulation, with a clear focus on the overarching requirements under the Consumer Duty as opposed to a more prescriptive approach for regulated agreements under the CCA. The flexibility of the new regime should enable lenders to attract new customers and compete on a product model that offers greater protection to consumers (who often have characteristics of vulnerability) but which also promotes innovation.

Help is at hand 

Please do not hesitate to get in touch if you have any questions on the proposed regulatory regime for DPC lending.