BNPL lenders under same rules as credit card providers, CFPB finds

In a landmark move, the Consumer Financial Protection Bureau issued an interpretive rule confirming that buy now, pay later (BNPL) lenders fall under the same regulatory framework as credit card providers. This decision, announced on May 22, 2024, heralds significant protections for consumers, aligning BNPL services with the longstanding safeguards afforded to traditional credit card users.

This development is the culmination of a multi-year investigation into the burgeoning BNPL market by the CFPB, which observed a marked increase in consumer complaints concerning refunds and disputed transactions. As the popularity of BNPL services has soared across multiple demographics and income levels, concerns have mounted over the absence of clear protections in scenarios where consumers seek refunds or face billing issues after purchasing goods or services.

The interpretive rule mandates that BNPL lenders provide consumers with critical rights including the ability to dispute charges and secure refunds for returned products or canceled services. Additionally, it requires these lenders to furnish consumers with periodic billing statements akin to those issued by classic credit card accounts. These measures aim to mitigate the chaos consumers often face when dealing with returns or other billing challenges.

Uniformity in consumer protections needed

CFPB Director Rohit Chopra emphasized the need for uniformity in consumer protections, stating, "Regardless of whether a shopper swipes a credit card or uses Buy Now, Pay Later, they are entitled to important consumer protections under longstanding laws and regulations already on the books."

The interpretive rule sheds light on how BNPL lenders meet the criteria for being considered credit card providers under the Truth in Lending Act. For consumers, the bureau reiterated that this means BNPL lenders must:

• Investigate disputes: BNPL lenders must investigate disputes that consumers initiate. Lenders must also pause payment requirements during the investigation and sometimes must issue credits.
• Refund returned products or cancelled services: When consumers return products or cancel services for a refund, BNPL lenders must credit the refunds to consumers’ accounts.
• Provide billing statements: Consumers must receive periodic billing statements like the ones received for classic credit card accounts.

The CFPB noted that this is a significant shift from previous practices where, at just five firms surveyed in 2021, more than 13 percent of BNPL transactions involved a return or dispute, leading to over $1.8 billion in disputed or returned transactions.

Public comments on interpretive rule open

The CFPB's intensive study of the BNPL industry, begun in 2021, identified BNPL as a close substitute for conventional credit cards, illuminating the parallel roles of BNPL and credit cards in combining payment processing and credit services while imposing transaction fees on merchants.

The CFPB said its ongoing efforts to monitor this market and gather public comments reflect its commitment to adapting its regulatory approach to the evolving landscape of consumer finance. Comments on the interpretive rule will be accepted until August 1, 2024.

Encouraging consumers and industry stakeholders to submit their comments and experiences related to the interpretive rule, the CFPB will accept feedback until August 1, 2024. See www.consumerfinance.gov. Employees who believe their company has violated federal consumer financial protection laws are urged to report their insights to the CFPB, as well.

This rule, the CFPB stated, marks a pivotal step in ensuring that the rapid evolution of the BNPL market does not compromise consumer rights. As the BNPL sector continues to grow and adapt, this regulatory framework will play a crucial role in safeguarding consumer interests and promoting responsible lending practices, the bureau added.

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