CFPB Strengthens Consumer Protections for Buy Now, Pay Later Services

The Consumer Financial Protection Bureau (CFPB) has issued an interpretive rule requiring Buy Now, Pay Later (BNPL) lenders to adhere to the same consumer protections as traditional credit card providers. This development underscores the importance of consumer rights in the rapidly growing BNPL market, ensuring consumers can dispute charges and obtain refunds on their purchases. This article explores the implications of the CFPB’s rule and what it means for consumers using BNPL services.

Buy Now, Pay Later services allow consumers to purchase goods and services immediately and pay for them over a short period, typically in four installments. These services have gained popularity as they offer a way to manage cash flow without incurring interest, making them an attractive alternative to credit cards. Leading BNPL providers like Affirm, Klarna, Afterpay, and PayPal have become household names, each offering unique features but generally following the same installment payment model.

BNPL has seen rapid growth, with many consumers across different demographics opting for this payment method. However, the surge in usage has also brought the attention of the CFPB.

Right to dispute charges: Under the new rule, BNPL lenders must investigate disputes initiated by consumers. This means that if a product is defective or not delivered, consumers can challenge the charge, and the BNPL lender must pause payment requirements during the investigation. This protection aligns BNPL services with traditional credit card dispute mechanisms.

Refunds for returns or cancellations: Consumers using BNPL services now have the right to receive refunds for returned products or canceled services. BNPL lenders must credit the refunds to the consumers’ accounts, ensuring that they are not financially disadvantaged when issues with their purchases arise.

Periodic billing statements: Similar to credit cards, BNPL lenders are now required to provide periodic billing statements to consumers. These statements help consumers keep track of their payments and outstanding balances, promoting better financial management and transparency.

The CFPB’s interpretive rule clarifies that BNPL lenders are considered credit card providers under Regulation Z. This means they must offer the same consumer protections as traditional credit card issuers, including dispute resolution and refund processes.

The rule provides consumers with more security when using BNPL services. They can now dispute charges and receive refunds, similar to using a credit card. Additionally, periodic billing statements help consumers manage their finances more effectively.

BNPL services will need to adjust their operations to comply with the new requirements. This may include implementing processes for dispute resolution and providing periodic billing statements. However, the core functionality of BNPL services remains unchanged.