CFPB Unveils Interpretive Rule on BNPL Lenders

The CFPB announced Wednesday that it is taking action with a new interpretive rule that states Buy Now, Pay Later (BNPL) lenders are credit card providers – a move that, according to CFPB officials, will require lenders give consumers key legal protections and rights that apply to conventional credit cards.

This announcement from CFPB Director Rohit Chopra came just days after a ruling by the U.S. Supreme Court confirmed the Bureau’s constitutional standing.

According to details of the interpretive ruling, consumers will have the “right to dispute charges and demand a refund from the lender after returning a product purchased with a Buy Now, Pay Later loan.”

Chopra said, “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. 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.”

Because BNPL lenders “typically meet criteria under existing law and regulation as traditional credit card providers, they need to extend many of the same rights and protections as classic credit card providers. Importantly, these cover dispute and refund rights,” according to the CFPB.

The interpretive rule stated BNPL lenders meet the criteria for credit card providers under the Truth in Lending Act. Therefore, the CFPB said BNPL lenders must do the following:

• 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.

The CFPB’s interpretive rule came after the Bureau began studying the BNPL market in 2021, when it found a number of consumer complaints related to refunds and disputed transactions. According to that report, “The CFPB found that Buy Now, Pay Later is often used as a close substitute for conventional credit cards to purchase goods and services. When people go to check out online or in person at a store, Buy Now, Pay Later is frequently offered as an option alongside the option to pay with a credit card. Just as credit cards can be used in a variety of situations, and not just in-person with a swipe or tap, Buy Now, Pay Later products are used via digital user accounts linked to websites, mobile apps, browser extensions, or integrations with merchant websites or mobile apps. Like conventional credit cards, Buy Now, Pay Later combines payment processing and credit services, while charging transaction fees to merchants.”

Comments on the interpretive rule will be accepted until Aug. 1, 2024.