The Consumer Financial Protection Bureau (CFPB) announced a new rule on Wednesday, stating that buy now, pay later companies must afford consumers the same legal rights and protections as credit card lenders.
This rule includes entitlements such as the right to request refunds and dispute transactions. The agency initiated an investigation into the short-term lending industry two years ago and issued the rule in response to ongoing consumer grievances.
Buy now, pay later loans, often advertised as zero or low interest, enable consumers to split payments for purchases over weeks or months. Typically offered at online checkout, they’re popular for significant purchases like furniture, clothing, and airline tickets.
According to a CFPB report, over 13% of buy now, pay later transactions involved returns or disputes, with $1.8 billion in transactions disputed or returned in 2021 across five surveyed companies.
CFPB Director Rohit Chopra emphasised, “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.”
Major players like Affirm and Klarna expressed support for the regulation. Affirm stated, “We are encouraged that the CFPB is promoting consistent industry standards… to provide greater choice and transparency for consumers.”
Klarna echoed this sentiment, emphasizing its longstanding call for regulatory oversight.
While some in the industry have voluntarily adopted practices now mandated by the CFPB, disparities between credit card lending and buy now, pay later loans remain.
For example, not all buy now, pay later lenders report loans to major credit bureaus, potentially leading consumers to overextend themselves or accrue unmanageable debt.