On 11 February, the FCA published Policy Statement 26/1 in which it confirmed that draft rules relating to deferred payment credit (DPC) which it consulted on back in July 2025 will be taken forward, largely unchanged.
The rules will apply from 15 July 2026 and, in summary, require DPC lenders to:
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- provide borrowers with pre-contractual information, information during the course of the DPC agreement and when a customer misses a payment;
- carry out creditworthiness and affordability assessments on borrowers;
- complete regulatory reporting like other regulated lenders, and
- comply with all other relevant sections of the FCA handbook, in particular in relation to the Consumer Duty, which will be the FCA’s chief way of policing DPC lenders given that the new rules deliberately lack prescription. Borrowers will also get the ability to complain to the Financial Ombudsman Service but won’t be eligible to claim compensation from the Financial Services Compensation Scheme.
DPC lenders who were providing DPC credit on 15 July 2025 are eligible to enter a temporary permissions regime (TPR) to allow them to keep lending beyond 15 July 2026. The registration window opens on 15 May 2026 and closes on 1 July 2026.
Where might the pinch points be for DPC lenders?
While DPC lenders will be pleased to see minimal changes to the rules consulted on in July 2025, there are areas where DPC lenders will need to think carefully.
FCA scrutiny
For already-regulated lenders offering DPC this will be business as usual. DPC lenders who have operated outside of the FCA’s regulatory perimeter and have no experience of being regulated will have gone on a steep learning curve as they acquaint themselves with the relevant rules in the FCA’s handbook.
But the days of tick-box compliance being sufficient are long in the past. In addition to being able to demonstrate that they have systems and controls in place, these firms will need to ensure that their culture also aligns with FCA expectations. This means adopting a consumer-focused approach, avoiding foreseeable harm, ensuring that the tone from the top drives the right behaviours at every level, and ensuring and evidencing that good outcomes are delivered to customers.
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By GlobalDataFor some DPC lenders, the compliance burden and FCA expectations may prove to be a stretch too far and we may see some consolidation of lenders, and others withdraw from the market entirely.
Provision of information
The FCA rules introduce requirements on DPC lenders to give borrowers pre-contract information and provide information during the life of the agreement (including when borrowers fall into arrears and may be the subject of enforcement action). DPC lenders will need to draft these extra documents and embed them into their processes. Under the Consumer Duty, DPC lenders will also need to evidence that they have considered the information needs of their customers, ensuring that customers had what they needed to make informed decisions. This includes demonstrating that information was provided in a form, and at a time that was meaningful and relevant to the customer’s decision‑making process.
While meaningful additional disclosure will help borrowers better understand the product they are taking and make informed choices, it will also introduce friction into the customer journey and may increase customer drop-off, especially from existing DPC users who have become accustomed to a seamless experience.
DPC lenders also need to be aware that the information they are required to give or make available must be in a ‘durable medium’. The FCA has declined to provide any additional guidance on durable medium, referring firms to an existing webpage on the topic instead.
At a time when many DPC lenders are fully digital and communicating with borrowers via an app, those lenders will need to carefully consider whether the durable medium requirements are met.
Creditworthiness and affordability assessments
In addition to introducing documentary friction into the customer journey, the application of existing FCA rules means that DPC lenders must now complete a reasonable creditworthiness assessment before they enter into each DPC agreement.
Given the propensity for DPC lending to be low-value and high-frequency (compared to other forms of unsecured lending), some DPC lenders have to date chosen to assess borrowers up to a maximum limit, rather than a loan-by-loan basis, and treat DPC as more akin to running-account credit than fixed-sum. This practice will need to be looked at carefully to ensure compliance with existing creditworthiness rules.
If DPC lenders conduct ‘hard’ searches at credit reference agencies each time a borrower enters into a new DPC agreement, high-frequency borrowers are likely to be negatively impacted as a result of multiple searches, even where they have a perfect repayment record. In contrast, credit card users would not be negatively impacted simply by making multiple transactions under the same credit agreement.
Of course, DPC lenders are under no obligation to use the services of credit reference agencies and are also (at least until the Credit Information Market Study remedies are implemented) under no obligation to report borrower repayments to those agencies.
To this end, some DPC lenders may choose to complete creditworthiness assessments using other means, such as viewing a borrower’s bank account history via Open Banking. No matter how DPC lenders carry out their creditworthiness assessments, they must be able to evidence to the FCA that their assessments were reasonable, appropriate, and proportionate for each customer.
How does the UK now compare to Europe?
The provision of credit in Europe is currently harmonised by the 2008 Consumer Credit Directive (CCD). Under CCD, the following are excluded from regulation: (1) agreements for less than €200; (2) agreements where credit is granted free of interest and without any other charges; (3) agreements where the credit has to be repaid within three months and only insignificant charges are payable (although some Member States, such as Ireland and Germany, regulate these buy-now pay-later style loans to varying degrees).
The second Consumer Credit Directive (CCD2), which requires Member States to comply from 20 November 2026 and adopts a maximum harmonisation approach, will now regulate all three categories of credit agreement described above which were previously out-of-scope. This will catch many buy-now pay-later loans.
Loans which are offered by SME suppliers of the goods / services being financed will be out-of-scope, provided certain other conditions are met (such as credit being provided without interest and with limited charges for late payments, and that credit must be repaid within 50 days). This is more restrictive than the proposed UK position, which will not regulate any lenders who supply the goods / services being financed provided that the terms of the current exemption are met (which allows deferment of up to 12 months and the charging of late fees).
Similar to the UK, CCD2 permits Member States to disapply certain pre-contractual information provisions relating to the three categories of credit agreement described above and will require lenders to undertake creditworthiness and affordability assessments. However, unlike the UK, CCD2 requires lenders to include a list of prescribed information into credit agreements (FCA rules will not require this) and credit intermediaries will not be exempt specifically based on offering these types of loans.
On a forward-looking basis, it’s worth noting that CCD2 is persevering with representative examples, with no specific carve-out for the three categories of credit agreement set out above (although Member States may choose to disapply some of the information required). In the UK, there’s no requirement for a representative example where the credit is provided at 0% APR.
Conclusion
As DPC lenders prepare for the FCA’s new regime, many will see this as an opportunity to strengthen their operating models and demonstrate the maturity expected of mainstream consumer credit providers. The firms that refine their disclosure processes, embed durable medium solutions, and recalibrate affordability assessments will be well‑placed to maintain a smooth customer journey while meeting regulatory expectations.
Others may look to reassess product design, adopt richer data sources such as Open Banking, or streamline governance frameworks to support sustainable growth. With the right support, DPC lenders can treat this regulatory shift not as a barrier but as a chance to build trust, differentiate themselves, and position their businesses for long‑term success in a market that is rapidly maturing.
Ben Player is a Partner and consumer finance expert at TLT
