High-cost credit covers a wide range of financial products including bank overdrafts, loans, buy-now-pay-later and rent-to-own schemes. Each product has its own benefits to consumers, but they also carry a risk of consumer harm. This harm may include high repayment costs and a greater risk of financial problems.

Regulation of high-cost credit

The Financial Conduct Authority (FCA) regulates generally regulates credit. It began a review of the sector and subsequently made regulatory changes to various products to help protect consumers, as discussed in our briefing paper Protecting consumers from unfair high-cost credit.

The review found that 3.1 million UK consumers were using these products in 2017, running to billions of pounds in debt. It also found that these products created particular risks to the most vulnerable people.

As part of the review, the FCA also published a report on alternatives to high-cost credit.

Buy-now-pay-later (BNPL)

Despite the review and the FCA’s actions, not all forms of high-cost credit are regulated. One of these is the buy-now-pay-later sector, which offers consumers the possibility of paying for goods and services by instalment. Although such arrangements can help consumers pay for more expensive products over time, it can nevertheless allow them to build up debt quickly and easily.

An exemption in law means that these payment plans are not treated in the same way as traditional credit agreements, so they are not regulated by the FCA.

A further investigation by the FCA – the Woolard Review, which reported in February 2021 – found that many consumers didn’t see BNPL as a form of credit so didn’t consider arrangements as carefully as they might otherwise have done. Although the BNPL market was comparatively small, the value of BNPL transactions nearly quadrupled between January and December 2020 to £2.7 billion.

The Woolard Review said there was “an urgent need to regulate all” BNPL products. In response, the Government launched a consultation into the regulation of buy-now-pay-later, which will close on 6 January 2022.

Wider recommendations on high-cost credit

Although much attention has focused on BNPL, the Woolard Review made wider recommendations about the unsecured credit sector, all of which have been accepted by the FCA. These include:

  • ensuring that good debt advice services are available to support a healthy credit market
  • ensuring that regulators sustain approaches developed during the coronavirus pandemic to ensure more forbearance on the part of creditors
  • promoting alternatives to high-cost credit
  • improving information about credit to help ensure a healthy market
  • ensuring that regulation promotes good outcomes across the lifetime of a product.

Further reading

House of Commons Backbench Business Committee, Representations by Stella Creasy MP, 2 November 2021

Library Briefings

Buy Now Pay Later: An “urgent need” to regulate,  Library Insight, 5 February, 2021

Protecting consumers from unfair high-cost credit, Library Briefing, 12 February 2020

Coronavirus: Impact on household savings and debt, Library Briefing, 6 July 2021

Official publications

Regulation of Buy-Now Pay-Later: consultation, HM Treasury, 21 October 2021 [consultation closes on 6 January 2022]

The Woolard Review: a review of change and review in the unsecured credit market, Financial Conduct Authority, February 2021

Alternatives to high-cost credit, Financial Conduct Authority, July 2019


Malcolm Le May on CMCs and FS regulation of the future, Providential Financial, 28 October 2021

The role of councils in improving access to affordable credit and financial services for low-income households, Local Government Association, 19 July 2021

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