CFPB Determines BNPL Companies Must Follow Same Regulations As Credit Card Providers

May 29, 2024

Ever since the advent and subsequent boom in use of Buy now, lay later services due to the pandemic, many problems have plagued this relatively new payment service: according to Rohit Chopra, Director at the US Consumer Financial Protection Bureau (CFPB), until now, when consumers place an order through BNPL, they do not have the same protections they would have if they used credit cards, meaning it is not clear whether they will get a refund for returned products or if the lender will give a satisfactory response (or any help at all) if the item received or service provided wasn’t as promised.

For this reason, the US will begin regulating BNPL as credit cards:

Companies must provide the same protections for consumers as conventional credit card companies, including investigating disputes, providing periodic billing statements and refunding returned products or voided transactions.

The CFPB conducted a n approximately two-year investigation on consumer complaints on disputed transactions, they identified a number of problems, including lack of privacy via data harvesting and monetization, debt accumulation and overextension, and standardized cost-of-credit disclosures.

This change, which hopes to protect consumers from all of the aforementioned, will go into effect later this year, and BNPL providers have already been notified. Some companies already adhere to these rules, but now they will apply across the entire sector.

Industry Reactions

BNPL companies are responding to these news in a non entirely positive way: while they agree rules should exist to protect consumers, they state that as far as payment models go,  BNPL and credit cards are very different and should be treated as such:

It is baffling that the CFPB fails to acknowledge the fundamental differences between BNPL and credit cards in their guidance and this announcement does nothing to address the $1.15 trillion in credit card debt, Trying to regulate BNPL like a credit card is like comparing apples with oranges. So the announcement is confusing. Klarna is already working to a high standard in investigating disputes, pausing payments, providing consumers with comprehensive billing statements.

Affirm commented:

We are encouraged that the CFPB is promoting consistent industry standards, many of which already reflect how Affirm operates, to provide greater choice and transparency for consumers. Affirm’s success is aligned with responsibly extending access to credit as we do not charge late or hidden fees.

The rules that will go in effect are aimed to consumer protection and should not have any other impact upon shoppers who choose BNPL services that already adhere to these rules. 

Want to learn more? Check out Payments Cards and Mobile’s full write-up here.

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