Hardly any other payment model has gained as much momentum in recent years as “Buy Now, Pay Later.” What began as a convenient payment option has now become a central financing instrument in online commerce—and has thus come under the scrutiny of European legislators. The Second Consumer Credit Directive significantly expands the scope of consumer credit law and now also covers previously unregulated, short-term, or free financing assistance. The German government’s draft implements these requirements. This article highlights which BNPL arrangements will be considered consumer loans in the future and where the legislative boundaries lie.
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The Second Consumer Credit Directive
Today – November 20, 2025 – marks the deadline by which member states had to implement the Second Consumer Credit Directive (CCD2). We do not yet know the final form of the law. Some details are apparently still being debated (further information here und here). In particular, the written form requirement is still under political discussion. But the message is clear in principle: consumers should also be protected when they take out small, short-term loans.
We have already reported in a previous article that European legislators want to comprehensively reform consumer loan law and why. The government’s draft for implementing its directive has now been available for several weeks.
The scope of consumer credit law will be expanded and become more complicated in the future. This raises practical questions: To what extent must a business inform consumers before concluding a contract, check their creditworthiness, or require special collateral? One type of contract that is particularly affected by this is Buy Now Pay Later.
The previous regulatory system
German contract law comprises three different but related legal concepts in consumer loan law.
Firstly, there is the general consumer loan agreement (Verbraucherdarlehensvertrag), which refers to loan agreements in the B2C sector (Section 491 (2) BGB). Under the old consumer credit law, a consumer loan agreement did not exist if the loan agreement was for less than €200 (minor loan) or for loans with a maximum term of three months and low costs.
Secondly, there is the deferral (Zahlungsaufschub) of payment, which is characterized by the fact that the consumer only has to pay later when purchasing goods or services (Section 506 (1) BGB). “Deferral of payment” is a general term used in European law. This includes payment arrangements such as deferral or purchase on account.
Thirdly, there is the instalment payment transaction (Teilzahlungsgeschäft) as a subcategory of deferred payment, the conventional term in German legal language being “Ratenkauf”. The law defines the instalment payment transaction as “the delivery of a specific item or the provision of a specific other service against instalment payments” (Section 506 (3) BGB).
The general provisions of consumer loan law are linked to the concept of consumer loans, and the other two concepts refer to this with some reservations. Under current law, standard instalment payment products fall within the scope of Sections 506 and 507 BGB, which largely refer to general consumer loan law as a legal basis. The system is based on the idea that a purchase on account or instalment purchase for a fee is economically no different from a loan in the civil law sense.
The new scope of consumer credit law…
The legislator is sticking to the old system in principle. However, there are some significant changes: The new consumer credit law no longer distinguishes between contracts for consideration and contracts without consideration. The old distinction between consideration and no consideration has thus largely lost its significance (see the new Sections 492 (2) sentence 1, 506 (1) BGB).
Furthermore, consumer credit law provides for the deletion of the scope exceptions for small loans (Section 491 (2) sentence 2 no. 1 BGB) and short-term loans (Section 491 (2) sentence 2 no. 3 BGB).
The scope provisions of the new Sections 506 and 507 BGB are now linked not to their remuneration (new Section 506 (1), (2) BGB), but to the legal concept of financial assistance itself. A new paragraph 1a simplifies the reading of the law because it refers separately to the regime of real estate consumer financing assistance. In particular, the exceptions to new § 506 (1) sentence 2 no. 3, no. 4, sentence 3 BGB have been revised. No. 3 (concerning deferral) is easy to read and largely self-explanatory in its objective. The legislator wants to ensure that the deferral of an existing claim free of charge is still possible in the interests of consumers.
For Buy Now Pay Later models, the real music is played in the new Section 506 (1) sentence 2 no. 4 BGB in conjunction with sentence 3. Here, the legislator has introduced a completely new and convoluted regulation….
what the European legislator wants to achieve with this…
According to the European legislator, the new regulation is aimed precisely at Buy Now Pay Later offers. It is based on consumer protection and ordoliberal thinking. On the one hand, the new consumer loan law is intended to provide consumers with better protection, even for cost-neutral offers, especially for medium-term payment terms of more than 14 or 50 days. On the other hand, European legislators want to limit the sales power of large online retailers when they implement their Buy Now Pay Later models in alliance with payment service providers. Recital 17 of the directive states:
Such large online suppliers, considering their financial capacities and their ability to drive consumers towards impulsive buying and potentially over-consumption, would otherwise be able to offer deferred payment in a very extensive way without any safeguard for consumers and to weaken fair competition with other suppliers of goods or providers of services.
The EU legislator assumes that large-scale assignment (known as factoring) to a payment service provider leads to distortion of competition and a risk of consumer indebtedness. The idea is that if a wholesaler joins forces with a payment service provider, this is particularly harmful to competition and consumer protection. It is important to keep both regulatory objectives in mind, because most of the difficulties in interpreting the provision have to do precisely with this mixing of the two. An apparently political compromise has resulted in a provision that is difficult to apply in detail.
… and what the German legislature has made of it: a rather convoluted regulation.
Due to full harmonization, the German legislature’s hands are tied by the directive, and resistance to the European legal requirements was largely futile. The result of the drafting process is the new Section 506 (1) sentence 2 no. 4, sentence 3 BGB in the government draft:
Contracts are not considered financial assistance within the meaning of sentence 1 if
- […],
- […],
- […] or
- in which the entrepreneur grants the consumer himself, without a third party granting a loan, a deferral of payment or other financial assistance, a period of up to 50 days after delivery of the goods or provision of the services for payment of the goods or services provided by this entrepreneur, and the consumer can only incur limited costs in the event of late payment.
[Sentence 3] If a trader who is not a micro, small or medium-sized enterprise within the meaning of Recommendation 2003/361/EC offers information society services in accordance with Article 1(1)(b) of Directive (EU) 2015/1535, for the provision of which distance contracts are concluded in accordance with § 312c, sentence 2, number 4 shall apply, with the proviso that the entrepreneur does not grant the consumer a longer period than 14 days after delivery of the goods or provision of the service for full payment and, in addition to the conditions specified therein, no third party acquires the payment claim against the consumer from the contract.
Test scheme for sectoral exemptions
In practice, it is crucial to determine when a Buy Now Pay Later offer does not qualify as financial assistance.
A brief example:
The customer places an order with a company via its online shop. The company has 60 employees and offers its customers the option of paying the invoice for their purchases 30 days later. To finance this, it assigns its receivables to a payment service provider.
How can the entrepreneur check whether consumer credit law applies to him? The following scheme can serve as a guide.
The law contains two provisions that relate to each other as a rule-exception relationship, with the exceptions expressed as a double negative (in the sense that the above does not apply if there is no SME). This is why both provisions read so complicatedly and are so intertwined. The new Section 506 (1) sentence 2 no. 4 BGB is formulated as the rule, sentence 3 of the provision as its exception for special cases. These provisions set out the conditions under which financial assistance is, exceptionally, not covered by consumer credit law.
The following checklist is recommended:
- Free of charge: The deferral of payment must be free of charge, i.e., without fees.
- Limited costs: The costs in the event of default by the customer must be only limited. This includes, for example, reminder fees (Sections 280 (1), (2), 286 BGB) or default interest (Section 288 BGB).
- No granting by third parties: This is the central element of the entire provision. Linguistically, it covers any “credit,” which also includes loans from third parties to the entrepreneur. This goes far beyond what the legislator had in mind and should be read restrictively with the addition of “granted a loan, etc. to the consumer.” This follows, firstly, from an interpretation in line with European law, as recitals 16 and 17 of the Consumer Credit Directive make it clear that loans to consumers are meant. And secondly, from the systematic connection with new Section 506 (1) sentence 3 BGB. According to this provision, a third party shall “not acquire any claim against the consumer.” In order for this provision to retain its own scope of application—which is explicitly mentioned in the government’s explanatory memorandum—the same cases cannot already be covered by new Section 506 (1) sentence 2 no. 4.
- Short payment term: The payment period may not exceed the maximum permissible period of 14 or 50 days. The payment term may therefore only be extended by this period. This is the consumer protection objective of the provision. The reasoning behind this is that a longer payment term tempts consumers to enter into transactions that may be beyond their means. The consumer credit regulations are therefore intended to protect consumers. The decisive factor for the start of the period is not when the parties agree on the deferral of payment, but when the entrepreneur has to make the payment. This follows from the wording and the explanatory memorandum (p. 144). However, this interpretation raises the follow-up question of when it is still a typical BNPL payment deferral (No. 4) and when it is already a deferral (No. 3). In any case, the legislator does not want to subsume circumventive transactions, in which the claim only falls immediately before the deferral agreement, under No. 3.
The question of the maximum permissible period again depends in detail on two questions:
- Is the company a micro, small or medium-sized enterprise within the meaning of Recommendation 2003/361/EC? This criterion refers to what are known as SMEs, i.e., companies with fewer than 250 employees and an annual turnover of no more than EUR 50 million or an annual balance sheet total of no more than EUR 43 million. If the answer to this question is “yes,” then the maximum permissible period is 50 days; otherwise, it is 14 days.
- Is a distance contract concluded in accordance with Section 312c of the BGB? The wording refers to the provision of information society services in accordance with Article 1(1)(b) of Directive (EU) 2015/1535, for which distance contracts are concluded in accordance with Section 312c. From the perspective of German legal practitioners, this definition is somewhat misleading, as it could be interpreted to mean that an “information society service” must be a type of service contract. However, the European legal understanding of this term is broader, and the European legislator has clarified in the recitals that it specifically wanted this term to cover the purchase of goods. If distance contracts are not concluded, i.e., if this question can be answered with “no,” then the maximum period is also 50 days; otherwise, it is 14 days.
In summary: An entrepreneur at the point of sale may agree on a payment term of 50 days.
An SME may agree on a payment term of 50 days in distance selling.
A “large” company may agree on a payment term of 14 days in distance selling.
- Prohibition of acquisition: In certain cases, no third party may acquire a claim against the consumer. The prohibition on acquisition covers full legal ownership, as held by the factor in the standard BNPL model of factoring. However, this prohibition on acquisition only applies to companies that are not SMEs and are engaged in distance selling.
Legal consequence: If the above conditions are met, there is conceptually no deferral of payment and therefore no application of consumer loan law.
Example:
Back to the example of our entrepreneur with 60 employees, whose customer orders goods from the online shop on account with a 30-day payment term. Does the entrepreneur fall under the exception in Section 506 (1) sentence 2 no. 4, sentence 3? Yes! Because the entrepreneur is an SME. The fact that the entrepreneur subsequently assigns the claim is irrelevant. This is because the restrictive requirement only applies to larger companies. In theory, the entrepreneur could even allow a payment term of 50 days.
Conclusion
The new regulations mark a turning point for providers of BNPL models. What was previously considered a mere deferral of payment may in future constitute financial assistance within the meaning of consumer loan law – with all the obligations that this entails: information requirements, credit checks, and contractual formalities. Companies should therefore review and adapt their contracts at an early stage in order to be compliant in good time once the directive has been transposed into national law.
