On May 22, the CFPB announced an interpretive rule confirming that Buy Now, Pay Later (BNPL) lenders qualify as credit card providers under the Truth in Lending Act, Regulation Z and are required to provide consumers legal protections and rights that apply to credit cards, including the ability to dispute charges, secure refunds for returned products and receive billing statements.

BNPL plans have been marketed as convenient financial solutions, allowing consumers to spread the cost of both products and services out over four or fewer installment payments without interest. The Bureau acknowledges that BNPL is a popular choice for online shopping and is also frequently offered alongside credit card options at physical retail locations.

The Bureau determined that lenders that BNPL mimics conventional credit cards accordingly meets the regulatory definition of “credit cards” as defined under Regulation Z. See 12 CFR 1026.2(a)(15)(i). Moreover, lenders are considered “card issuers” and “creditors.”

Under the CFPB’s interpretive rule, BNPL lenders must:

• Investigate disputes. BNPL providers are required to investigate disputes initiated by consumers. During such investigations, they must pause payment requirements and, in certain cases, must issue credits.
• Refund returned products or cancelled services. When consumers return products or cancel services for a refund, BNPL providers must credit the refunds to consumers’ accounts. 
• Provide billing statements. Consumers must receive periodic billing statements like the ones received for traditional credit card accounts.

Comments on the interpretative rule are due August 1, 2024.

Putting it into Practice: The rapid expansion of the BNPL sector has not gone unnoticed by regulators. The issuance of this interpretive rule marks a significant development in the Bureau’s ongoing efforts to monitor the BNPL sector (previously discussed here, here, and here) and underscores the CFPB’s push to regulate innovative financial services products that do not fall neatly within the existing framework of federal law (or here, the Truth in Lending Act). Most BNPL providers already have these processes in place but if not, they should start ensuring that their procedures match the Bureau’s guidance. 

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