In an effort to exert more control over the rapidly expanding industry, the U.S. Consumer Financial Protection Bureau announced on Wednesday that it will apply certain credit card consumer protection regulations to buy now, pay later (BNPL) lenders.

Retailers and BNPL providers like Affirm, Klarna, and Afterpay work together to finance consumer purchases, which consumers then pay back over time in installments. Although it now serves as a significant source of credit, the industry is not subject to regulatory control.

In accordance with an interpretive rule released on Wednesday by the CFPB, BNPL lenders will have to look into complaints from customers, reimburse returned goods, and send out billing statements on a regular basis. These are all obligations that credit card companies already fulfil in accordance with the Truth in Lending Act.

“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,” said CFPB Director Rohit Chopra in a statement.

A CFPB official told reporters that while the majority of significant BNPL providers now voluntarily adhere to credit card-like regulations, the new rule should bring uniformity throughout the industry.

According to the official, the restriction will only be applicable to the well-liked “pay in four” installment plan. Additionally, the government stated that BNPL providers will not have to follow some other credit card regulations, such determining a customer’s ability to repay.

According to Adobe Analytics, BNPL loans accounted for $75 billion in online expenditures in 2023, an increase of 14.3% over 2022.

Consumers frequently utilise BNPL as an alternative to traditional credit cards, according to a 2022 CFPB research. However, consumer protection disclosures differ throughout major providers, and the loans may cause borrowers to accumulate excessive debt.

In a statement, a Klarna representative described the CFPB’s action as “a significant step forward in regulating BNPL,” pointing out that the company already meets the level stipulated in the rule.

Under Chopra, the CFPB has stepped up its crackdown on internet businesses that are invading the traditional banking industry. It has suggested that it oversee Google and Apple’s payment systems and is closely examining the ways in which these behemoths exploit consumer payment data.

According to a CFPB spokesperson, the interpretation rule will take effect in 60 days and is available for comments until August 1.

(Adapted from NPR.org)

Categories: Economy & Finance, Regulations & Legal, Strategy, Uncategorized