The U.S. Consumer Financial Protection Bureau (CFPB) has issued an interpretive ruling that mandates Buy Now, Pay Later (BNPL) lenders to adhere to the same regulatory standards as credit card operators, Reuters reports. This landmark decision means that BNPL providers must extend key legal protections and consumer rights akin to those of traditional credit card companies. Despite criticism, we think this is a reasonable approach to protecting consumers.
The CFPB’s ruling requires BNPL lenders to offer consumers the right to dispute charges and request refunds from the lender after returning a product purchased through a BNPL loan. This aligns BNPL services more closely with conventional credit cards, which have long been subject to these consumer protections.
CFPB Director Rohit Chopra emphasized the similarities between BNPL services and credit cards, noting that both combine payment processing with credit services and charge transaction fees to merchants. “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,” Chopra stated. “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 CFPB’s inquiry into the BNPL market, which began over two years ago, revealed ongoing consumer complaints about refunds and disputed transactions. The agency’s market report found that over 13% of BNPL transactions involved a return or dispute, amounting to $1.8 billion in disputed or returned transactions in 2021 among the five firms surveyed.
For consumers, this ruling means that BNPL lenders are required to investigate disputes, refund returned products or canceled services, and provide periodic billing statements similar to those issued for credit card accounts.
The ruling has elicited mixed reactions from industry players. Affirm welcomed the decision, praising the promotion of consistent industry standards that enhance consumer choice and transparency. “We are encouraged that the CFPB is promoting consistent industry standards, many of which already reflect how Affirm operates,” the company stated.
Conversely, Swedish Klarna criticized the ruling as “baffling,” arguing that BNPL and credit cards are fundamentally different products. “Trying to regulate BNPL like a credit card is like comparing apples with oranges,” Klarna remarked, highlighting that other countries, such as the UK and Australia, have acknowledged these differences. “It is our hope that the CFPB will recognize the major differences between BNPL and credit cards, as they operate in fundamentally different ways.“
The CFPB is currently inviting comments on the ruling, with a deadline for submissions set for August 1.
