The U.S. Consumer Financial Protection Bureau (CFPB) announced on Wednesday that it will extend certain credit card consumer protection rules to buy now, pay later (BNPL) lenders, in a move aimed at increasing oversight of the rapidly expanding sector. BNPL providers like Affirm (AFRM), Klarna, and Afterpay (SQ), which partner with retailers to finance customer purchases repaid in installments, will now be required to adhere to rules that credit card companies comply with under the Truth in Lending Act. These include investigating customer disputes, refunding returned products, and providing periodic billing statements.
CFPB Director Rohit Chopra emphasized the need for consumer protections regardless of the payment method, 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 most major BNPL providers voluntarily comply with similar protections, the new rule aims to ensure consistency across the sector. The rule specifically targets the popular "pay in four" installment product, though it excludes some credit card rules, such as assessing a consumer's ability to repay. Market Overview:
- The U.S. Consumer Financial Protection Bureau imposes credit card consumer protections on BNPL lenders.
- The rule requires BNPL providers to investigate disputes, offer refunds, and provide billing statements.
- This move aims to regulate the fast-growing BNPL sector and enhance consumer protection.
- The rule applies to "pay in four" products but excludes creditworthiness checks required for credit cards.
- The rule fosters consistency in consumer protections across BNPL providers.
- This might impact BNPL business models that relied on different disclosure practices.
- Increased regulation could slow the growth of the BNPL sector but promote responsible lending.
BNPL loans have become a significant source of credit, driving $75 billion in online spending in 2023, a 14.3% increase from the previous year, according to Adobe Analytics. A 2022 CFPB report indicated that consumers often use BNPL as a substitute for conventional credit cards, but noted variations in consumer protection disclosures among major providers. This inconsistency can lead to consumers becoming over-indebted, underscoring the need for regulatory oversight. Klarna, in response to the CFPB's move, called it "a significant step forward in regulating BNPL," highlighting that it already operates at the standards called for in the new rule.
Under the leadership of Director Chopra, the CFPB has intensified its scrutiny of tech companies entering the financial sector. The agency has proposed supervising payment services from Google and Apple and is closely examining how tech giants use consumer payment data. The extension of credit card rules to BNPL providers represents the latest effort by the CFPB to ensure robust consumer protections in the evolving financial landscape.
