The Consumer Financial Protection Bureau announced that customers using buy now, pay later services now have the same federal protections as credit card users.
The New Update by CFPB
The agency introduced an “interpretive rule” stating that BNPL lenders are now equal to traditional credit card providers under the Truth in Lending Act.
The new rule states that buy now pay later companies like Affirm, Klarna, and PayPal must follow the same rules as traditional credit card providers. This includes issuing refunds for returned items, investigating complaints about merchants, and disclosing fees on bills.
CFPB Director Rohit Chopra said that credit card users and buy now, pay later customers now have the privilege of the same consumer protections.
The CFPB, with the help of a recent Supreme Court win, has been active in regulating the financial sector. It has also been proactive in reducing credit card late fees and overdraft penalties. Formed after the 2008 crisis, it started pushing the BNPL industry in late 2021.
During a media briefing, Chopra added that digital installment loan services have exploded in popularity, with volumes increasing tenfold from 2019 to 2021. The CFPB is concerned that some users may be given more debt than they can handle.
Chopra emphasized that “buy now, pay later” has become important in the consumer credit market as it offers consumers a viable alternative. The CFPB aims to ensure that these new options do not gain an unfair advantage by bypassing established rights and responsibilities under the law.
It’s uncertain how many BNPL providers fail to meet refund and dispute requirements. Affirm’s website, for example, has pages dedicated to these activities. While many BNPL companies offer these services, the new rule aims to ensure consistent application across the industry, according to a senior official from the CFPB.
All About The New Rule
The new rule will take effect in 60 days, and the agency welcomes public feedback. On Wednesday, Affirm’s shares fell 5.2%, and PayPal’s dropped 3%.
BNPL providers expect more regulation, such as applying existing card rules. Klarna claimed its no-interest product was less risky than credit cards and needed less oversight.
Klarna suggested creating a specific framework for BNPL rather than fitting it into outdated credit card rules. She believes it would be more appropriate for the risks involved.
Klarna also welcomed the CFPB’s action on BNPL regulation, adding that it already complies with refund, dispute, and billing standards.
Klarna said the differences between interest-free BNPL and credit cards, criticizing the CFPB for overlooking this distinction.
Affirm encouraged the CFPB’s push for industry standards, noting that many of them align with how Affirm already operates. They also mentioned being engaged with the regulator to enhance their operations.
The spokesperson said that Affirm’s success is linked to its responsibly extending access to credit, as the company does not charge late or hidden fees. The spokesman added that they urge other companies that offer buy now, pay later products to live up to the industry’s promise to provide consumers with a more flexible and transparent alternative to other payment options.
BNPL companies, similar to payday lenders, might challenge the CFPB rule by taking legal action against the agency.
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