The government has said that new legislation to be launched next year will put an end to the “wild west” of unregulated Buy Now, Pay Later (BNPL) services.

The new regulation aims to provide consumers with stronger rights and more transparent information in line with other types of credit.

The legislation includes affordability controls to prevent people from accumulating unaffordable debts and faster access to repayments to protect working people.

Starting next year, BNPL companies must meet the standards to ensure consumers have a more complete understanding of what they are signing up for when they choose to split payments, whether they can afford it, and how to get help if their financial situation changes during the process.

New requirements will include the introduction of advance checks to ensure that people are able to repay what they borrow, fairer and quicker access to repayments, and the right to complain to the Financial Ombudsman, bringing BNPL in line with other credit products.

“BNPL is a useful tool when used responsibly to help people manage their finances and has grown rapidly with an extra two million people using the product since 2022,” the government sAid.

It added that the changes are aimed at boosting consumer confidence and giving businesses the certainty they need to innovate, grow and invest, implementing the government's “Plan for Change” to grow the economy, unlock investment, create jobs and increase the personal wealth of citizens.

The “Plan for Change,” outlined by prime minister Keir Starmer last December, sets out a series of milestones including raising living standards in every part of the UK and securing home-grown energy.

Emma Reynolds, economic secretary to the Treasury emphasised how BNPL services have transformed shopping for millions, but for too long have operated “as a wild west,” leaving consumers exposed.

“These new rules will protect shoppers from debt traps and give the sector the certainty it needs to invest, grow, and create jobs through our Plan for Change,” she added.

The announcement is supported by new reforms of the new Consumer Credit Act, which aims to introduce a renewed, growth-friendly framework for modern borrowers and is a reform of the 1974 Consumer Credit Act.

Last week, a survey by the UK financial regulator, the Financial Conduct Authority (FCA), found that 40 per cent of lone parents and 35 per cent of women aged between 25 and 34 use BNPL products.

According to research from personal finance site Finder, the popularity of BNPL services in the UK is steadily growing. Data from the company shows one in eight Brits, or around 6.8 million people, used BNPL services for the first time in 2024.

Lisa Webb, consumer law expert at the Which? consumer association, told the BBC its research indicated "many users do not realise they are taking on debt or consider the prospect of missing payments".

BNPL Klarna told the BBC that the company has supported regulation of the industry since 2020.

"It's good to see progress on regulation, and we look forward to working with the FCA on rules to protect consumers and encourage innovation," a spokesperson at the firm said.

BNPL specialist Clearpay stated that it would support the FCA in providing appropriate regulation to boost consumer protection, while delivering “much needed innovation in consumer credit” and sustaining the “UK's burgeoning FinTech sector."

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