CFPB to Extend Credit Card Consumer Protection Rules to BNPL Lenders

The U.S. Consumer Financial Protection Bureau (CFPB) is taking a major step in regulating the rapidly growing buy now, pay later (BNPL) sector. In a new interpretive rule issued on Wednesday, the agency announced that it will be applying some credit card consumer protection rules to BNPL lenders such as Affirm, Klarna, and Afterpay.

BNPL providers partner with retailers to offer customers the option to finance their purchases and repay them in installment payments. However, despite the sector becoming a significant source of credit, it currently lacks a federal oversight framework. Under the new rule, BNPL lenders will now be required to investigate customer disputes, refund returned products, and provide periodic billing statements – all in line with the Truth in Lending Act requirements for credit card companies.

CFPB Director Rohit Chopra emphasized the importance of ensuring consumer protections are upheld, stating, “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.”

While many major BNPL providers already voluntarily comply with credit card-like protections, the new rule aims to bring consistency across the sector. It will specifically apply to the popular “pay in four” installment product, with some credit card rules – such as assessing a consumer’s ability to repay – not being mandatory for BNPL providers.

BNPL loans drove $75 billion in online spending in 2023, up 14.3% from the previous year, according to Adobe Analytics. However, a 2022 CFPB report highlighted concerns about varying consumer protection disclosures across major providers and the potential for consumers to become over-indebted.

In response to the CFPB’s move, Klarna praised the initiative as “a significant step forward in regulating BNPL,” affirming that it already operates at the standard called for in the rule.

Under Chopra’s leadership, the CFPB has been vigilant in supervising tech companies encroaching on the financial sector. The agency has proposed to oversee payment services from tech giants like Google and Apple and has been scrutinizing how they handle consumer payment data.

The interpretive rule is currently open for comments until Aug. 1 and is set to be effective in 60 days, according to a CFPB official. This development marks a significant shift towards greater oversight and consumer protection in the rapidly evolving BNPL sector.