U.S. consumer watchdog to apply credit card rules to 'buy now, pay later' companies

Hannah Long

(Reuters) – The U.S. Consumer Financial Protection Bureau said on Wednesday it would apply some credit card consumer protection rules to buy now, pay later (BNPL) lenders, imposing more oversight on the fast-growing industry.

BNPL providers such as Affirm, Klarna and Afterpay work with retailers to provide financing for customers' purchases, allowing shoppers to pay in instalments. The sector has become a major source of credit but lacks a federal oversight framework.

Under an interpretive rule issued by the CFPB on Wednesday, BNPL lenders will be required to investigate customer disputes, refund returned products and provide periodic statements — all requirements that credit card companies currently comply with under the Truth in Lending Act.

“Whether shoppers swipe a credit card or use buy now, pay later, they are entitled to important consumer protections under longstanding laws and regulations,” CFPB Director Rohit Chopra said in a statement.

CFPB officials told reporters that most major BNPL providers already voluntarily comply with credit card-like protections, but the new rules should provide consistency across the industry.

The official said the rule only applies to the popular “four-point payment” installment product. The agency said BNPL providers will not be required to comply with some other credit card rules, such as assessing a consumer's ability to repay.

According to data from Adobe Analytics, BNPL loans drove $75 billion in online spending in 2023, a 14.3% increase from 2022.

According to a 2022 CFPB report, consumers often use BNPL as an alternative to traditional credit cards, but consumer protection disclosures vary among major providers, and these loans can lead to consumers being over-indebted.

Under Chopra, the CFPB has cracked down on tech companies' encroachment into traditional finance, proposing regulation of Google and Apple's payment services and scrutinizing how the tech giants use consumer payment data.

A CFPB official said the interpretive rule will be open for comment until August 1 and will take effect within 60 days.

(Reporting by Hannah Long in New York; Editing by Michelle Price and Lincoln Feast.)

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