The Consumer Financial Protection Bureau (CFPB) has released an interpretive rule today, affirming that Buy Now, Pay Later (BNPL) lenders are considered credit card providers. As a result, BNPL lenders are required to offer consumers key legal protections and rights similar to those of traditional credit cards.
The Consumer Financial Protection Bureau (CFPB) has released an interpretive rule today, affirming that Buy Now, Pay Later (BNPL) lenders are considered credit card providers. As a result, BNPL lenders are required to offer consumers key legal protections and rights similar to those of traditional credit cards.
These rights include the ability to dispute charges and request refunds from the lender after returning products purchased with BNPL loans. The CFPB began investigating the rapidly growing BNPL market over two years ago and continues to receive consumer complaints about refunds and disputed transactions. This action aims to bring consistency to the BNPL market.
“When consumers check out and choose Buy Now, Pay Later, they don’t know if they will get a refund if they return their product or whether the lender will help them if they didn’t get what was promised,” said CFPB Director Rohit Chopra. “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 Buy Now, Pay Later (BNPL) market has seen rapid growth in recent years. Lenders promote the option of purchasing items through four easy payments. These products are marketed as a way to help consumers afford costly products and services over time without incurring interest. Currently, BNPL options are available for both products, such as televisions and gaming systems, and services, like airline tickets and cruises. BNPL products are widely popular among people of all ages, races, and income levels.
The commission shares they began examining the Buy Now, Pay Later (BNPL) industry in 2021 and found that BNPL is often used as a close alternative to conventional credit cards for purchasing goods and services. At checkout, both online and in physical stores, BNPL is frequently offered alongside credit card payment options. Similar to credit cards, which can be used in various situations beyond just in-person swipes or taps, BNPL products are utilized through digital user accounts linked to websites, mobile apps, browser extensions, or integrations with merchant platforms. The commission arrived at the conclusion that BNPL, like traditional credit cards, combines payment processing and credit services and charges transaction fees to merchants.
Since Buy Now, Pay Later (BNPL) lenders typically meet the criteria set by existing laws and regulations for traditional credit card providers, they must offer many of the same rights and protections. Notably, these include the rights to dispute charges and request refunds. A CFPB market report revealed that over 13% of BNPL transactions involve a return or dispute. In 2021, consumers disputed or returned $1.8 billion in transactions at the five firms surveyed. Without proper dispute protections, consumers can face significant challenges when returning merchandise or dealing with other billing issues the commission explains.
Today’s press release gives the interpretive rule explaining how Buy Now, Pay Later lenders meet the criteria for credit card providers, under the Truth in Lending Act. For consumers, this means Buy Now, Pay Later lenders must:
Investigate disputes: Buy Now, Pay Later 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, Buy Now, Pay Later 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.
In 2021, the CFPB initiated an inquiry into the Buy Now, Pay Later (BNPL) industry, focusing on debt accumulation, regulatory gaps, and data harvesting. The agency published its findings in 2022, highlighting the industry's rapid growth and increasing consumer risks. Last year, the CFPB shared insights into the financial profiles of BNPL borrowers. Readers can get access to the interpretive rule via this link, "Truth in Lending (Regulation Z); Use of Digital User Accounts to Access Buy Now, Pay Later Loans."
If you or any one has an issue you believe is unresolved pertaining to the rule stated above, the CFPB encourages the public to submit comments on the interpretive rule. Given the rapid changes in this market, public feedback will help the CFPB determine where additional clarity is needed, potentially through further rules and guidance related to the BNPL market. Comments will be accepted until August 1, 2024.
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