Buy Now, Pay Later Customers: Credit Check Every Time They Shop? Your Essential Guide
For millions of people across the United Kingdom, the convenience of spreading costs has transformed the high street and online checkouts. However, the landscape is shifting. Many buy now, pay later customers will soon find that the once 'frictionless' experience now involves more rigorous oversight. As the Financial Conduct Authority (FCA) brings these products under formal regulation, the focus has moved from ease of access to consumer protection.
At Citizens Advice Lancashire West, we have seen a significant rise in residents seeking help with multiple overlapping short-term loans. With the UK's buy now, pay later (BNPL) market reaching an estimated £13 billion (figures vary — check latest industry reports), the transition to a regulated environment is a vital step in preventing unmanageable debt. This guide explains what these changes mean for your wallet, your credit score, and your rights as a consumer.
Why Regulation is Arriving Now
For several years, BNPL products — often referred to as Deferred Payment Credit (DPC) — operated in a regulatory 'grey area'. Unlike credit cards or traditional personal loans, they were not always subject to the same strict rules regarding affordability. Data from the FCA’s Financial Lives Survey indicates that a significant portion of UK adults — approximately 14 million people as of 2023 — used BNPL in the preceding 12 months. As usage has grown, so too have concerns about people 'stacking' loans they cannot afford to repay.
The government and the FCA have confirmed that new regulations are expected to be in force by 2026 (the exact 'Regulation Day' is subject to final parliamentary approval — check gov.uk for updates). From the commencement date, BNPL providers must be authorised and follow specific rules designed to ensure that lending is responsible. For buy now, pay later customers, affordability assessments will become a legal requirement for lenders to ensure the borrower can actually afford the instalments.
The New Reality: Assessments for Every Transaction
Previously, many shoppers only underwent a 'soft' credit check when they first opened an account with a provider. Subsequent purchases often went through without further scrutiny. Under the new FCA framework, this is changing. Lenders will be legally obliged to carry out proportionate affordability and creditworthiness assessments for transactions. While the rules allow for proportionality, providers must ensure the credit is suitable for the customer's financial situation, even for smaller purchases.
Soft Checks vs. Hard Checks
It is important to understand the distinction between the types of checks you might encounter:
Soft Credit Checks: These are visible to you but not to other lenders. They do not impact your credit score. Many BNPL providers traditionally used these to check eligibility.
Hard Credit Checks: These leave a footprint on your credit file. Other lenders can see them, and too many in a short space of time can lower your credit score as it may suggest financial distress.
As the industry adapts to incoming regulation, more providers are sharing data with Credit Reference Agencies (CRAs) like Experian, Equifax, and TransUnion. This means that for buy now, pay later customers, their repayment history is increasingly likely to influence their overall credit profile.
The Impact on Your Credit Score
Historically, one of the main draws of BNPL was that it didn't always appear on credit reports. However, that 'invisibility' is largely a thing of the past. Major CRAs are integrating BNPL data into their reporting. While successfully paying off your instalments on time can demonstrate good financial management, the risks have also increased.
If you miss a payment or pay late, this will be reported and can damage your ability to secure a mortgage, a car loan, or even a mobile phone contract in the future. Citizens Advice research has highlighted that a growing number of advice seekers carry BNPL debt, reflecting the importance of the shift toward mandatory affordability assessments as a safety net.
Enhanced Protections for UK Shoppers
While the prospect of more rigorous checks might seem like an inconvenience, the regulation brings substantial new protections for consumers in Lancashire and across the UK:
Section 75 Protection
Once the regulation is fully implemented (targeted for 2026), purchases made via BNPL between £100 and £30,000 are expected to be covered by Section 75 of the Consumer Credit Act 1974. This means your BNPL provider would be jointly liable with the retailer if the goods are faulty, not as described, or if the retailer goes bust. This brings BNPL in line with credit card protections.
Financial Ombudsman Service (FOS)
If you have a dispute with a BNPL provider that you cannot resolve directly, you will have the right to escalate your complaint to the Financial Ombudsman Service once the providers are fully regulated. This provides a free, independent way to settle disputes that was previously unavailable for most BNPL users.
Clearer Information and Disclosures
Lenders must provide clear information about their products. This includes clear details on when payments are due, the total amount owed, and what happens if you miss a payment. The FCA's Consumer Duty also requires firms to act to deliver good outcomes for retail customers, including providing helpful and accessible information.
Managing BNPL Wisely: Actionable Advice
At Citizens Advice Lancashire West, we encourage a cautious approach to any form of credit. If you are using these services, consider the following steps:
Treat it as Debt: It may feel like a 'lifestyle choice' or a simple checkout option, but it is a legal credit agreement.
Budget for Every Instalment: Before clicking buy, ensure the money will be in your account for all future payment dates.
Avoid 'Stacking': It is easy to lose track when you have multiple accounts. Use a budgeting app or a simple spreadsheet to track your total monthly outgoings.
Check Your Credit Report: Use free services to monitor your credit file and see how your BNPL usage is being reported.
Avoid Essentials on Credit: We strongly advise against using BNPL for groceries, utility bills, or rent. If you are struggling to cover essential costs, please reach out for professional advice rather than taking on more debt.
How Citizens Advice Lancashire West Can Help
We can help you navigate debt priority, understand your credit report, and communicate with lenders if you are in financial difficulty. Under the FCA Consumer Duty, lenders are required to support customers in financial difficulty. We are here to ensure you get the high-quality, client-centred support you deserve.
Conclusion
The regulation of the buy now, pay later sector marks a turning point for UK consumers. While the requirement for affordability assessments may add a step to your checkout process, it serves as a safeguard against debt spirals. By understanding your rights, monitoring your credit score, and borrowing responsibly, you can make the most of flexible payments without compromising your financial future.
Sources
HM Treasury - Government response to the consultation on BNPL regulation (October 2024)
Financial Conduct Authority (FCA) - Financial Lives Survey and Consumer Duty guidance
Citizens Advice - Reports on Buy Now Pay Later and consumer debt
MoneyHelper (Money and Pensions Service) - Guide to Buy Now Pay Later
UK Finance - Household Finance Review and consumer credit data