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Federal Agency Cracks Down on Buy Now, Pay Later — What Does It Mean for Shoppers?

Photo: Edward Berthelot/Getty Images

As buy now, pay later (BNPL) services continue to lure in price-conscious online shoppers, companies like Klarna, Afterpay and Affirm will soon receive closer federal oversight. On Wednesday, the U.S. Consumer Financial Protection Bureau (CFPB) issued a new interpretation under the existing Truth in Lending Act. It states that buy now, pay later companies must provide the same protections for consumers as conventional credit card companies, including investigating disputes, providing periodic billing statements and refunding returned products or voided transactions. 

“When consumers check out and choose Buy Now, Pay Later, they don’t know if they will get a refund if they return their product or whether the lender will help them if they didn’t get what was promised,” said CFPB Director Rohit Chopra 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 longstanding laws and regulations already on the books.”

The BNPL market boomed as e-commerce orders exploded during the pandemic; fashion is one of the top categories for which consumers use these services.

Before announcing this new interpretation — which will go into effect in two months — the CFPB spent more than two years investigating consumer complaints over disputed transactions. Its study identified various problems including standardized cost-of-credit disclosures, lack of privacy via data harvesting and monetization, and debt accumulation and overextension. While most BNPL companies already abide by this clarified regulation, the new interpretation enforces this across the entire sector. 

That’s not to say there hasn’t been pushback. BNPL companies have issued formal responses to the news, and while they don’t necessarily disagree with the regulation’s sentiment, they emphasized that their payment models are different than traditional cards and should be treated as such. Where conventional credit cards charge interest on unpaid products, the BNPL method typically allows consumers to pay in installments with no credit check.

“We have long supported and called for bespoke, proportionate BNPL regulation that fits the unique nature of the products, fosters innovation and ensures consumer protection for years. It is baffling that the CFPB fails to acknowledge the fundamental differences between BNPL and credit cards in their guidance and this announcement does nothing to address the $1.15 trillion in credit card debt,” Klarna shared in a statement. “Trying to regulate BNPL like a credit card is like comparing apples with oranges. So today’s announcement is confusing. Klarna is already working to a high standard in investigating disputes, pausing payments, providing consumers with comprehensive billing statements.”

Affirm Holdings Inc. said of the issue: “We are encouraged that the CFPB is promoting consistent industry standards, many of which already reflect how Affirm operates, to provide greater choice and transparency for consumers. Affirm’s success is aligned with responsibly extending access to credit as we do not charge late or hidden fees.”

Overall, the news shouldn’t have much of an impact on shoppers who use the BNPL services already offering these protections on disputes and returns. But it should provide peace of mind for those worried about issues like having to keep paying installments on items they returned or never received, as all BNPL lenders will now be required to investigate disputes and stop charges on returned or disputed orders.

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