Regulators are playing catch-up with the growing “buy now, pay later” business.
Providers of increasingly popular point-of-sale loans must now offer some of the same protections offered to credit card users, including the right to dispute charges and demand refunds for returned purchases, it has announced the Consumer Financial Protection Bureau on Wednesday.
The agency, which protects consumers from financial abuse, is taking the step in response to customer complaints of getting late-paying providers when they dispute a charge or try to return items, CFPB officials said in a press conference on Tuesday.
Hailed by shoppers as an interest-free way to make purchases from clothes to travel, the loans allow borrowers to pay over time, usually in four installments over six weeks. Use of loans increased during the pandemichelping fuel a boom in online shopping, the CFPB noted.
Similar to credit cards
An interpretative rule issued by the agency states that BNPL lenders are effectively credit card providers and therefore must provide consumers with basic protections that include buying things with plastic.
“When consumers check out and choose to buy now, pay later, they don't know if they'll get a refund if they return their product or if the lender will help them if they didn't get what was promised,” CFPB Director Rohit. Chopra said in a statement. “Regardless of whether a shopper swipes a credit card or uses buy now, pay later, they are entitled to important consumer protections under long-standing laws and regulations already on the books.”
In addition, BNPL lenders will have to provide users with periodic billing statements similar to those issued for traditional credit card accounts, according to the interpretive rule, which will come into effect in 60 days, the agency said.
Under the new rules, BNPL lenders must now:
- Investigate disputes initiated by consumers, pausing payment requirements in the process.
- Refund returned products or canceled services to consumer accounts.
- Provide consumers with periodic billing statements like standard credit card receipts.
Risk of debt accumulation
Buy now, pay later is increasingly being offered as an option alongside credit card payment, with the five biggest players in the industry generating $24 billion in loans in 2021, an increase of more than 10 times the $2 billion in 2019, according to the CFPB.
Half of shoppers ages 25 to 44 use BNPL, according to Bankrate. The option could generate as much as $84 billion in spending, up 13% from last year, according to Adobe Analytics.
But BNPL plans can include high fees for those who miss paymentsConsumer Reports warned last year.
Loans offered by companies such as Affirm, Afterpay, Klarna, PayPal, and Zip are typically not reported on consumer credit reports, nor are they reflected in consumers' credit scores. This has led to concerns that users may be taking on too much debt that is not transparent to other lenders or regulators.
Apple bucked that trend by announcing in February that it would report loans made through its Apple Pay Later program to Experian, one of the credit bureaus.
