The U.S. Consumer Financial Protection Bureau (CFPB) will enforce certain credit card consumer protection rules on buy now, pay later (BNPL) lenders, the agency announced on Wednesday. This move aims to enhance oversight in the rapidly expanding payments sector.
BNPL providers like Affirm, Klarna, and Afterpay collaborate with retailers to finance purchases, which customers repay in instalments. While this sector has grown substantially as a credit source, it currently lacks a federal regulatory framework.
According to an interpretive rule issued by the CFPB on Wednesday, BNPL lenders must now investigate customer disputes, refund returned products, and provide periodic billing statements. These are requirements that credit card companies must meet under the Truth in Lending Act.
“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,” stated CFPB Director Rohit Chopra.
While most major BNPL providers already voluntarily adhere to similar protections, the new rule aims to ensure uniformity across the sector, a CFPB official informed reporters.
The rule will apply only to the popular “pay in four” instalment product, and BNPL providers will not need to comply with certain other credit card regulations, such as assessing a consumer’s ability to repay, the agency clarified.
BNPL loans accounted for $75 billion in online spending in 2023, a 14.3% increase from 2022, according to Adobe Analytics.
A 2022 CFPB report indicated that consumers often use BNPL as an alternative to traditional credit cards. However, consumer protection disclosures vary among major providers, and these loans can lead to increased consumer debt.
Under Chopra’s leadership, the CFPB has increased scrutiny on tech companies entering the financial sector, proposing supervision of payment services from Google and Apple and examining how tech giants utilise consumer payment data.
