The Consumer Financial Protection Bureau (CFPB) announced on Wednesday that customers of buy now, pay later (BNPL) services will now have the same federal protections as credit card users. The agency issued an interpretive rule under the Truth in Lending Act, designating BNPL lenders such as Affirm, Klarna, and PayPal as similar to traditional credit card providers. This means that BNPL firms must provide refunds for returned products, investigate merchant disputes, pause payments during investigations, and disclose fees on bills. CFPB Director Rohit Chopra emphasized that consumers using BNPL services are entitled to important consumer protections already established in existing laws and regulations.
The CFPB has been cracking down on the U.S. financial industry, recently turning its attention to the rapidly growing BNPL industry dominated by fintech firms. The agency began investigating BNPL providers in late 2021 and aims to ensure that consumers are not given more debt than they can handle through these digital installment loan-type services. The use of BNPL services has surged in recent years, with volume increasing tenfold from 2019 to 2021. The CFPB’s new rule seeks to level the playing field by applying consistent refund and dispute requirements across the BNPL industry.
Although some BNPL providers already offer refund and dispute services, the CFPB’s new rule aims to standardize these practices industry-wide. The new rule is set to go into effect in 60 days, and the agency is currently open to public commentary on the matter. BNPL companies have long anticipated increased regulation in the industry and have expressed concerns about existing card rules being applied to them. Klarna, for example, argued that its no-interest product poses less risk to customers than credit cards with high interest rates, thus requiring less oversight. However, the CFPB’s new rule has been seen as a significant step forward in BNPL regulation by companies such as Klarna.
In response to the CFPB’s new rule, Klarna has acknowledged the importance of adhering to standards for refunds, disputes, and billing information. However, the company emphasized the fundamental differences between interest-free BNPL and credit cards, arguing that the CFPB may have overlooked these distinctions in its regulatory approach. There is a possibility that BNPL companies, like payday lenders and other financial entities, could challenge the CFPB rule through litigation. This echoes past legal challenges faced by the agency, such as the federal judge’s recent decision to pause the implementation of the CFPB rule capping credit card late fees at $8 per incident.
Overall, the CFPB’s move to extend federal protections to BNPL customers reflects the agency’s commitment to ensuring consumer rights and responsibilities in the financial industry. As the BNPL industry continues to expand, regulatory efforts are needed to safeguard consumers from excessive debt and unfair practices. The new rule will help create a more level playing field in the BNPL sector while also sparking potential legal challenges and debates about the appropriate regulatory framework for these innovative financial services. It remains to be seen how BNPL providers will respond to the new rule and whether further regulatory action will be necessary to address the unique characteristics of BNPL compared to traditional credit card services.
