The buy-now-pay-later (BNPL) sector faces tougher restrictions after the UK’s Financial Conduct Authority (FCA) published a review into the unsecured credit market.

The Woolard Review sets out how regulation can support a healthy market for unsecured lending, taking into account the impact of Covid-19, changing business models, and developments in BNPL unsecured lending.

This follows concerns from the industry that consumers are taking on too much debt, with some struggling to meet payment deadlines.

Christopher Woolard, Chair of the Review, said: “Most of us will use credit at some point in our lives. So, it’s vital that we have a fair market that works for everyone. New ways of borrowing and the impact of the pandemic are changing the market, with billions of pounds now in unregulated transactions and millions of consumers at greater risk of financial difficulty.”

The announcement comes just weeks after MPs voted against regulating the BNPL sector. A group of 70 cross-party MPs failed to push the bill through Parliament.

BNPL: friend or foe?

Many BNPL outlets such as Klarna offer services that enable consumers to pay 30 days later or split their purchases into monthly instalments.

Critics of the sector have said this encourages consumers to spend money they do not have, ultimately causing many to be pushed into debt. Those who fail to pay will see this reflected on their credit score and may be faced with further interest and penalty charges.

Woolard added: “Changes are urgently needed: to bring BNPL into regulation to protect consumers; to ensure that there is secure provision of debt advice to help all those who may need it; and to maintain a sustained regulatory response to the pandemic.

“Alongside these urgent issues the Review sets out a series of recommendations for how the FCA, working with partners, can build a better market in future.”

James Padmore, head of money at, advised that, despite its benefits, consumers should still be vigilant when making purchases via BNPL.

“When used responsibly, Buy Now Pay Later schemes can be an effective way to spread out the payments of large purchases,” he said. “However, as with any credit product, there can be problems later down the line if spending is not kept under control, and in particular there can be an attitude of ‘I’ll deal with it later’ towards these products.

“If you do need to take on credit, make sure you research all the options available to you and find the product best suited to your needs – taking into account any interest or fees. One option could be a credit card but it is important to check your eligibility using a soft credit search.”

FCA accepts review 

In 2020, the use of BNPL products nearly quadrupled, with around five million people using them in the UK. The review states that BNPL products should be brought within the regulatory perimeter as a matter of urgency.

The FCA has welcomed the report and has said it supports the recommendations made by the review. Charles Randall, Chair at the FCA, said: “Regulation should be consistent and the Review shows how we can ensure high standards in consumer credit regardless of the form of credit,” he said.

“As the market innovates and changes, regulators and legislators need to respond quickly and decisively to protect consumers by facilitating credit where it is beneficial and clamping down on it when it does harm. The FCA agrees that there is a strong and pressing case to bring buy-now pay-later business into regulation.”

Targeting Gen Z and millennials

BNPL firms have also come under fire in the past for not providing enough support to customers struggling to pay their bills. Commentators have called BNPL services often confusing, with Gen Z and millennials an “easy” target.

Speaking to EPI last year, Sue Anderson, head of media at debt charity StepChange, said: “Buy now, pay later services are increasingly being marketed to consumers as a source of convenience – a way of getting hold of the goods before needing to pay, and a way of spreading the cost over instalments rather than paying one lump sum.

“While there’s nothing intrinsically wrong with that, it’s important consumers recognise that a ‘buy now, pay later’ transaction is still a financial commitment. In particular, where services are targeted at younger people, there needs to be real consideration as to whether the customer is aware of all the necessary information, such as consequences of non-payment.”

Anderson said young people are especially vulnerable to problem debt. In the first half of 2019, 14% of StepChange clients were under 26.

“Young people tend to have less secure incomes, are more likely to rent, and can often have higher living costs – all of which can contribute to greater risks of debt problems,” Anderson added.