Huge rule changes for anyone using Klarna, Clearpay and PayPal from July 15

Huge rule changes for anyone using Klarna, Clearpay and PayPal from July 15 Shoppers could find it more difficult to make purchases and expert help will be made available Buy now, pay later customers face major rule changes from July 15 including having to undergo affordability checks under stronger protections coming into force. The sector will come under the Financial Conduct Authority’s (FCA) regulation from July 15 2026, and lenders will need to be authorised by the regulator to provide BNPL products. BNPL options, like Klarna, Clearpay and PayPal, often appear at online checkouts and they enable people to spread the cost of purchases, which for some people, could make their payments easier to manage. But the products have been controversial, with concerns that some people could be overstretching themselves financially and making borrowing problems worse. The FCA said that, under its supervision, consumers should receive clear, upfront details about their agreement, including when payments will be due, amounts, and what happens if they miss a payment. Lenders must also carry out proportionate checks to make sure customers can afford to repay what they borrow before offering BNPL. BNPL firms will also need to offer support to customers in financial difficulty, and, where appropriate, direct them to free debt advice. If something goes wrong, consumers will also be able to complain to the Financial Ombudsman Service (FOS). Sarah Pritchard, deputy chief executive at the FCA, said: “We want the buy now, pay later sector to thrive – it provides an important source of credit to many – and we will continue to support firms who want to develop innovative new products. But crucially, no-one should be lent to if they’re unable to repay because that could worsen their financial situation. Now Parliament has given us the powers, we’re putting in place proportionate protections for the 11 million people who use it.” The BNPL market has grown significantly in recent years, to reach over £13 billion in 2024, the FCA said. According to its 2024 Financial Lives Survey, 20% of UK consumers, equating to 10.9 million adults, used BNPL in the 12 months to May 2024. Peter Tutton, director of policy, research and public affairs at StepChange Debt Charity, said: “Buy now, pay later can be a helpful way for people to spread costs. But like any form of credit, it carries risks when repayments become difficult. The absence of FCA regulation until now has only heightened the risk of financial harm for those relying on BNPL. “Going forward, people using BNPL products will be protected by affordability checks, consistent support from lenders and access to the Financial Ombudsman if things go wrong – these are all essential safeguards for borrowers using any type of credit. “We would urge anyone using BNPL to always double check that the repayments will be affordable, and if you are struggling to repay, free and impartial debt advice is available from charities like StepChange.” Rocio Concha, Which? director of policy and advocacy, said: “Buy now, pay later has become a popular payment method for many consumers – especially for those managing tighter budgets. However, because it has so far been unregulated, consumers paying this way haven’t been made sufficiently aware of the risks attached with this form of credit, such as the late fees which may apply and the potential of getting into debt. “Which? has campaigned for years for BNPL to be regulated and clearer information, proper affordability checks and access to redress when things go wrong should give shoppers proper protections should they choose this payment method.” Vix Leyton, a consumer expert at banking app thinkmoney, said: “Bringing BNPL under regulation is absolutely the right move because it puts essential guardrails around a product millions rely on.” Anne Pardoe, head of policy at Citizens Advice, said: “These protections couldn’t come soon enough. The growing BNPL market is driving more people to our services each year, with many struggling to repay credit they can’t afford or falling behind on essential bills.” A spokesperson at BNPL provider Clearpay said: “We welcome regulation, which will establish a consistent operating environment and clear compliance standards for all providers.” A Klarna spokesperson said: “These new rules will raise standards across the market.” A spokesperson for banking and finance body UK Finance said: “It’s right that the product is regulated and our members welcome the application of more flexible regulation through the FCA.” The major changes locked in or expected for July 2026 include: 1. Major Buy Now Pay Later (BNPL) Regulations (July 15, 2026) Following extensive consultations, the Financial Conduct Authority (FCA) is officially bringing Buy Now Pay Later providers (like Klarna, Clearpay, and PayPal) under its strict Consumer Duty umbrella. - Mandatory Affordability Checks: Lenders will legally be required to run proportional credit and affordability checks for every single purchase, not just when you first open an account. - Section 75 Protection: For any BNPL agreement made from July 15 onwards on items costing between £100 and £30,000, the finance provider will be jointly liable with the retailer if a product is faulty or never arrives. This gives shoppers the exact same safety net as standard credit cards. - Financial Distress Support: Providers must offer clear pathways to free debt advice and are restricted from aggressively stacking late fees on customers who are struggling.