Buy Now, Pay Later lenders must offer the same consumer protections as credit card providers, ensuring consumers can dispute charges and obtain refunds.
05/22/2024 3:50 P.M.
2 minute read
The Consumer Financial Protection Bureau recently issued an interpretive rule that classifies Buy Now, Pay Later (BNPL) lenders as credit card providers, according to a press release.
The rule mandates that BNPL lenders extend key consumer rights and legal protections that apply to traditional credit cards, including the right to dispute charges and receive refunds for returned products.
“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,” CFPB Director Rohit Chopra said.
The interpretive rule specifies several protections for consumers using BNPL services:
- Investigation of Disputes: BNPL lenders are required to investigate consumer-initiated disputes. During these investigations, lenders must pause payment requirements and potentially issue credits.
- Refunds for Returned Products or Cancelled Services: When consumers return products or cancel services, BNPL lenders must credit the refunds to the consumers’ accounts.
- Periodic Billing Statements: Consumers must receive regular billing statements similar to those provided for traditional credit card accounts.
BNPL has become increasingly popular as a payment option, offering consumers the ability to purchase goods and services through installment payments without immediate interest. This method is often presented as an alternative to credit cards at checkout, whether online or in-store. The convenience and appeal of BNPL options have led to their widespread use across various demographics, making the need for regulatory clarity and consumer protection more pressing.
The CFPB’s examination of the BNPL market began in 2021, focusing on issues such as debt accumulation, regulatory arbitrage, and data harvesting. The bureau’s findings indicated that BNPL services are frequently used as substitutes for conventional credit cards. Notably, the CFPB’s report highlighted that over 13% of BNPL transactions involved returns or disputes, amounting to $1.8 billion in 2021 among the five firms surveyed.
The interpretive rule clarifies that BNPL lenders must comply with the Truth in Lending Act’s requirements for credit card providers. This ensures that consumers have the ability to dispute charges, receive timely refunds, and maintain clarity through periodic billing statements.
The CFPB encourages public comments on the interpretive rule, which will be accepted until Aug. 1, 2024.
Related Content from ACA International:
- From the Web: ‘Buy Now, Pay Later: Spreading the Pay(n)?’
- BNPL Popularity Surges—Regulators, Risk Analysts and Lenders Rush to Dissect Usage
- From the Web: Consumers Use BNPL to Spread Out Cash Flow
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