CFPB issues rule to classify BNPL as credit cards 

CFPB Building

The CFPB Wednesday announced an interpretive rule to apply some, but not all, of the consumer protections in place for credit cards under Regulation Z to Buy Now, Pay Later (BNPL) loans. The rule allows consumers to dispute charges and obtain refunds from the lender after returning a product purchased with a BNPL loan. The rule also subjects BNPL accounts to the disclosure and periodic statement requirements seen with credit cards.

However, because of the structure of BNPL, the CFPB’s rule does not consider it to be “open-end credit,” meaning that it is not subject to some of the regulations in place for credit cards, such as penalty fee limits and ability-to-repay requirements.

“America’s Credit Unions is concerned with the CFPB’s rushed interpretive ruling on Buy Now, Pay Later programs because the bureau sidestepped the requirements of the Administrative Procedure Act and failed to fully consider subjecting BNPL providers to important consumer protections, including ability to repay requirements,” said America’s Credit Unions Chief Advocacy Officer Carrie Hunt. “This shortcoming puts consumers at risk. Credit unions fully embrace innovation in the market but are disappointed that the CFPB continues to put traditional lenders with established protections at a disadvantage.” 

The interpretive rule describes how BNPL lenders meet the criteria for credit card providers under the Truth in Lending Act, requiring BNPL lenders to investigate disputes, refund returned products or canceled services, and provide periodic billing statements. 

“In a market report, the CFPB uncovered that more than 13% of Buy Now, Pay Later transactions involved a return or dispute,” noted the bureau. “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 rule is applicable 60 days after publication in the Federal Register and the CFPB is accepting public comments on the interpretive rule by August 1. 

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