Lenders will have to do better affordability checks on borrowers and offer clearer information on loans.
Buy-now pay-later products allow consumers to pay for goods in instalments, typically interest free.But while they have surged in popularity, particularly among young people, they remain largely unregulated, raising concerns about people falling into debt.
Under the new plans, the FCA would be given powers to clamp down on firms who break the rules, including banning them from further lending. Firms would also have to be licensed by the FCA and would face tougher rules when advertising their products.Philip Belament of Zilch told the BBC's Today programme that customers do not currently enjoy the protections of what you would typically see in a normal debt product.
"People should be able to access affordable credit, but with clear protections in place," said Financial Services Minister Andrew Griffith.Recent research from the Centre For Financial Capability, a financial education charity, said people of all ages were now turning to the sector as they struggled with the cost of living, showing the need for urgent regulation.
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