Compliance with U.S. credit card laws is mandatory for buy now, pay later firms, according to the CFPB.

• On Wednesday, the Consumer Financial Protection Bureau announced that customers of the growing buy now, pay later industry will be subject to the same federal protections as credit card users.
• The agency declared that BNPL lenders are equivalent to traditional credit card providers under the Truth in Lending Act, according to an "interpretive rule" they released.
• Fintech companies such as Affirm, Klarna, and PayPal dominate the BNPL market.

On Wednesday, the Consumer Financial Protection Bureau announced that customers of the growing buy now, pay later industry will be subject to the same federal protections as credit card users.

The agency declared that BNPL lenders are equivalent to traditional credit card providers under the Truth in Lending Act, according to an "interpretive rule" they released.

The fintech industry, currently led by companies such as PayPal, Klarna, and others, must issue refunds for returned products or canceled services, investigate merchant disputes, and pause payments during those investigations, as well as provide bills with fee disclosures.

According to CFPB Director Rohit Chopra, shoppers are entitled to consumer protections regardless of whether they use a credit card or Buy Now, Pay Later, as these protections are already enshrined in long-standing laws and regulations.

The CFPB, which received a significant triumph from the Supreme Court last week, has been relentless in its opposition to the U.S. financial sector, enacting regulations that drastically reduced credit card late fees and overdraft penalty charges. The agency, established in response to the 2008 financial crisis, commenced probing the BNPL industry in late 2021.

Surging debt

The use of digital installment loan-type services has increased dramatically in recent years, with volumes rising tenfold from 2019 to 2021, according to Chopra. One of the CFPB's concerns is that some users are being given more debt than they can handle.

"The Consumer Financial Protection Bureau (CFPB) is ensuring that buy now, pay later loans are not gaining an advantage over other consumer credit options by circumventing longstanding rights and responsibilities under the law."

On the Affirm website, there are separate pages for refunds and disputes. However, it is unclear how many BNPL providers do not comply with these requirements.

The CFPB acknowledged that many BNPL players offer those services, but the new rule will ensure that they are applied consistently across the industry, a senior agency official told reporters.

The official announced that the new rule will be implemented in 60 days and the agency is currently accepting public feedback on it.

Litigation ahead?

BNPL providers have long anticipated greater regulation, with a focus on applying existing card rules to the industry. In March, Klarna published a post stating that its no-interest product was less risky for customers than credit cards, which often come with high interest rates, and therefore requires less oversight.

Instead of fitting BNPL into an outdated credit card system that does little to safeguard consumers, Washington leaders should create a BNPL framework that corresponds to the risk it poses.

The possibility of BNPL companies suing the CFPB arises due to the industry's opposition to the rule, similar to payday lenders.

A federal judge last week paused the implementation of the CFPB rule limiting credit card late fees to $8 per incident, which was set to take effect this month.