WASHINGTON— The Consumer Financial Protection Bureau (CFPB) has issued an interpretive rule that confirms that Buy Now, Pay Later lenders are credit card providers.
“Accordingly, Buy Now, Pay Later lenders must provide consumers some key legal protections and rights that apply to conventional credit cards,” the CFPB said in a statement. “These include a right to dispute charges and demand a refund from the lender after returning a product purchased with a Buy Now, Pay Later loan.”
The CFPB said it launched its inquiry into the rapidly expanding Buy Now, Pay Later market more than two years ago and continues to see consumer complaints related to refunds and disputed transactions. It said its action will bring “consistency” to the market.
‘Rapid’ Expansion
“The Buy Now, Pay Later market has expanded rapidly over the past few years. Lenders advertise buying products over four simple payments,” the CFPB said. “Products are marketed as a way to help consumers pay for expensive products and services over time without having to pay interest. Today, both products, like televisions and gaming systems, and services, like airline tickets and cruises, can be purchased through Buy Now, Pay Later products. Buy Now, Pay Later products are popular across ages, races, and income levels.”
According to the CFPB, it began studying the Buy Now, Pay Later industry in 2021 and said it found Buy Now, Pay Later is often used as a “close substitute” for conventional credit cards to purchase goods and services.
It’s an ‘Option’
“When people go to check out online or in person at a store, Buy Now, Pay Later is frequently offered as an option alongside the option to pay with a credit card,” the CFPB said. “Just as credit cards can be used in a variety of situations, and not just in-person with a swipe or tap, Buy Now, Pay Later products are used via digital user accounts linked to websites, mobile apps, browser extensions, or integrations with merchant websites or mobile apps.
“Like conventional credit cards, Buy Now, Pay Later combines payment processing and credit services, while charging transaction fees to merchants,” the Bureau added.
The CFPB further stated that because BNPL lenders will typically meet criteria under existing law and regulation as traditional credit card providers, they need to extend many of the same rights and protections as classic credit card providers.
Dispute & Refund Rights
“Importantly, these cover dispute and refund rights,” the CFPB said. “In a market report, the CFPB uncovered that more than 13% of Buy Now, Pay Later transactions involved a return or dispute. In 2021, people disputed or returned $1.8 billion in transactions at the five firms surveyed. The failure to provide dispute protections can create chaos for consumers when they return their merchandise or encounter other billing difficulties.”
The Bureau said its new interpretive rule describes how Buy Now, Pay Later lenders meet the criteria for credit card providers, under the Truth in Lending Act.
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