Securitisation Regulatory Update: UK regulator consults on reforms to deferred payment credit (Buy Now Pay Later)

On 14 July 2025, the FSMA (Regulated Activities etc) (Amendment) Order 2025 (the "DPC Legislation") brought unregulated deferred payment credit ("DPC") within the UK Financial Conduct Authority's ("FCA") remit. According to the FCA, DPC lending has grown from £0.06 billion in 2017 to over £13 billion in 2024 and 20% of UK consumers (10.9 million adults) used DPC in the 12 months leading up to May 2024.

DPC (known by consumers as buy now pay later) refers to a type of interest-free credit which finances the purchase of goods or services and that is repayable in 12 or fewer instalments within 12 months or less. DPC is currently exempt from regulation. Lenders who only provide DPC (and no other consumer credit) do not currently need to be FCA authorised and do not need to comply with most of the provisions of the UK Consumer Credit Act ("CCA").

Under the DPC Legislation, from 15 July 2026, third-party lenders providing a DPC agreement to finance the purchase of goods or services ("DPC Lenders") will need to be authorised/licenced by (or hold a temporary permission from) the FCA and will need to comply with certain requirements under the CCA. Merchants that offer their own DPC to consumers, including tech or e-commerce platforms providing DPC without involving a third party, will not require authorisation.

On 18 July 2025, the FCA issued a 186-page consultation paper on its proposed rules for authorisation and supervision of DPC Lenders. The consultation closes on 26 September 2025.

Market participants (including originators and investors) involved in the securitisation of consumer credit receivables derived from DPC agreements will need to be aware of:

• the proposed regulatory reforms which will change the way in which DPC Lenders operate in the UK;
• the enhanced pre-transaction due diligence that will be necessary to evidence compliance with these reforms; and
• the FCA's commentary on the potential financial impact of this regulatory change on the DPC market.

What are the proposed new rules for DPC Lenders?

1. Application of the wider FCA Handbook

The FCA states it wants a proportionate regulatory framework that relies on the FCA Consumer Duty, where possible, rather than introducing new rules. DPC Lenders will need to comply with, amongst other things, the following sections of the FCA Handbook.

• The principles of business (PRIN): This also includes compliance with the FCA Consumer Duty and duty to treat customers fairly. 
• The threshold conditions (COND): These requirements include holding sufficient financial resources, adopting an appropriate business model and maintaining a UK office.  
• Systems and controls (SYSC) and the Senior Managers and Certification Regime: These rules includes requirements relating to compliance, risk, financial crime, etc. In addition, CEOs, directors, and other designated staff may need to be become FCA-approved senior managers. 
• Consumer credit (CONC): With some revision, general conduct of business standards, financial promotions/customer communications and post-contractual requirements will apply to DPC Lenders. CONC 7 rules on arrears and forbearance will apply in full to DPC Lenders. 
• DPC lenders will be subject to the Supervision Manual (SUP) and the Enforcement Guide (EG) (including the access to the complaints and redress provisions relating to the Financial Ombudsman).

Information Requirements

In the DPC Legislation, the government elected not to apply all the CCA requirements to DPC Lenders. The requirements in CONC 4.2 of the FCA Handbook (Pre-contract and adequate explanations) which apply to consumer credit lenders shall not apply to DPC Lenders. As such, the FCA has proposed a separate disclosure regime for DPC lenders.

DPC lenders will be required to disclose certain mandatory information before a consumer takes out a DPC agreement. In particular, DPC lenders (1) will need to "proactively" give a customer certain information in a prominent way (the "key product information") and (2) give, or make available, other specific pieces of information to a customer (the "additional product information"). Information will need to be delivered in a "durable medium" which will include non-paper-based forms.

Key product information will include:

• the rate of interest (stating that it is 0%) and the amount of credit to be provided under the DPC agreement;
• the number and frequency of payments to be made under the agreement (with, where known, specific dates) and 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, e.g., charges for late or missed payments, the risk of impaired credit rating, etc.;
• whether a DPC Lender will undertake a search at a credit reference agency;
• withdrawal/cancellation rights, early repayment rights, the right to refer complaints to the Financial Ombudsman; and
• (if relevant) an adequate explanation of what a continuous payment authority is and how it works.

Additional product information will include, amongst other things: (i) the identity of the DPC Lender and the merchant/broker and (ii) an explanation of the protections available under section 75 of the CCA.

Instead of proposing specific requirements for presenting product information, the FCA proposes to introduce guidance linked to these new rules and the existing FCA Consumer Duty.

2. Form and content of DPC agreements

The FCA is not proposing rules on the form and content of DPC agreements. The requirements under the CCA as to form and content will not apply to DPC Lenders. It will be for DPC Lenders to decide how they deal with the full contractual terms and conditions of the relevant DPC agreement.

However, if a DPC Lender chooses not to give full contractual terms and conditions to a consumer before they enter an agreement, the rules will require it to make consumers aware of the existence of any other contractual terms and conditions and how to access them in the key product information.

3. Treatment of missed payments

The FCA's proposed rules will also require a DPC lender to give a consumer reasonable notice (through a communication) before it intends to take steps to (i) terminate a DPC agreement or (ii) enforce a term of the DPC agreement by demanding earlier payment of any sum, treating any right conferred on the debtor by the DPC agreement as terminated, restricted or deferred, or (iii) enforcing any security.

The FCA does not propose any requirements on how, or through what medium, a firm should make these communications.

The FCA's rules also do not generally prescribe the content of these communications, but for communications about missed repayments they do require DPC Lenders to set out the following:

• Information that enables the consumer to understand which DPC agreement a missed repayment communication refers to.
• A notification about any sums which have become payable under the agreement and remain unpaid (including late fees, and any late fees that remain outstanding from any previous missed repayments under that agreement).
• Any immediate or future adverse consequences for the consumer from missing the repayment and, where relevant, any steps the borrower can take to alleviate those consequences.

The new rules for DPC Lenders will sit alongside the existing rules in CONC 7 (Arrears, default and recovery) which will also apply to DPC Lenders.

4. Creditworthiness Assessments

• The FCA proposes that DPC Lenders apply existing CONC 5.2A rules to assess affordability proportionately, considering the borrower's ability to repay without detriment to their financial well-being. This includes maintaining policies approved by senior management, reviewing lending outcomes, and considering data from credit reference agencies.
• The FCA is consulting on whether the creditworthiness rules should be disapplied for lending of £50 or less. However, the FCA has also noted that the "data it has received from DPC lenders indicates that just over half of DPC agreements involve advances below this amount. 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."

5. Regulatory Reporting

DPC Lenders will be subject to quarterly regulatory reporting requirements, including transaction-level product sales data. This will require DPC Lenders with an annual total value of £2 million or more (in outstanding consumer credit balances and/or new consumer credit advances) to submit data on sales made within the reporting period and performance/status of loans that remain open or were closing within the reporting period.

When will DPC Lenders need to be authorised by the FCA?

• DPC Lenders who want to continue to offer DPC from 15 July 2026 (described by the FCA as "Regulation Day") will either need to be authorised by the FCA or have approval to continue to operate under the temporary permission regime ("TPR"). The TPR will allow DPC Lenders who do not currently hold the necessary FCA consumer credit permissions to continue to operate until the FCA determines their application for authorisation.
• Notification for registration for the TPR will open two months before Regulation Day and close two weeks prior to Regulation Day. DPC Lenders in the TPR will be able to apply for full authorisation within a six-month window following Regulation Day.
• Eligibility criteria to enter the TPR will be straightforward and restricted to (i) evidence that the DPC Lender was providing DPC prior to 15 July 2025; (ii) relevant details of the firm's offices, place of business, trading names, etc.; and (iii) details of its controllers and senior managers. DPC Lenders will also be required to attest that, from Regulation Day, they will comply with the relevant FCA rules. The FCA will display details of firms registered for the TPR on its website.
• Where a merchant offers DPC to customers, it will not require authorisation. However, the FCA has clarified that "[m]erchants that split lending and retailing across two or more separate legal entities will need to ensure each of the relevant legal entities in their groups which are carrying on DPC lending hold the correct permissions now, register for TPR or cease their relevant operations prior to Regulation Day."
• There will be grandfathering of existing agreements. DPC agreements that existed before Regulation Day will continue to be exempt agreements. The DPC Legislation makes clear that only agreements entered into on or after Regulation Day will be regulated DPC agreements¹.
• To enable an orderly exit from the market, DPC Lenders who are refused FCA authorisation will remain in the TPR until the earlier of (i) the date on which they have collected all sums owing under the DPC agreement or (ii) the date falling two years after the notice of refusal is issued by the FCA.

What has the FCA stated will be the impact on the DPC market?

• In its impact analysis set out in the consultation paper, the FCA stated "[c]osts are primarily driven by reductions in transactions compared to a baseline of DPC remaining outside the regulator perimeter with assumed significant and sustained growth in the market. A modelled reduction in transactions as a result of our proposals is shown to result in lost profits for both DPC lenders (£1.2bn) and merchants (£1.4bn) but we still model total profits of £4.1bn and £14.7bn, respectively. There are also compliance costs to lenders (£0.2bn), which is the main area of potential double counting with the HMT [impact assessment]. Overall, we estimate a central estimate of total net direct costs to business, DPC firms and merchants of £2.7bn. This is equivalent to estimated annual net direct cost to business of £337m".
• The FCA has also added that the "…… Merchants will stand to benefit through paying lower fees on transactions that are completed through alternative payment methods rather than DPC, such as credit or debit cards (£582m). We also expect that there will be benefits to DPC firms through lower loss provisioning for bad debts following more stringent creditworthiness assessments and more informed consumers".
• Overall, its conclusion is that "…….central present value estimate of total benefits from our proposals over a 10-year appraisal period is £2.4bn. These benefits largely accrue to consumers through a reduction in late fees paid (£440m) and improvements in wellbeing (£1.4bn), primarily due to fewer debt collection events."
  
  

¹ Paragraph (7A) inserted into Article 60B of the FSMA (Regulated Activities) Order by Article 3(3)(b) of the FSMA (Regulated Activities, etc.) (Amendment) Order 2025