On May 22, 2024, the CFPB issued an interpretive rule that confirms that Buy Now, Pay Later lenders are credit card providers. Thus, Buy Now, Pay Later lenders must provide consumers some key legal protections and rights that apply to conventional credit cards.
CFPB Director Rohit Chopra said the following in a statement:
“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. 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.”
In 2021, the CFPB started studying the Buy Now, Pay Later industry and found that it is often used as a close substitute for conventional credit cards to purchase goods and services. Like conventional credit cards, Buy Now, Pay Later combines payment processing and credit services, while charging transaction fees to merchants.
The CFPB’s interpretive rule describes how Buy Now, Pay Later lenders meet the criteria for credit card providers, under the Truth in Lending Act. Accordingly, Buy Now, Pay Later lenders must:
Investigate disputes. Buy Now, Pay Later lenders must investigate disputes that consumers initiate. Lenders must also pause payment requirements during the investigation and sometimes must issue credits.
Refund returned products or cancelled services. When consumers return products or cancel services for a refund, Buy Now, Pay Later lenders must credit the refunds to consumers’ accounts.
Provide billing statements. Consumers must receive periodic billing statements like the ones received for classic credit card accounts.
Read the CFPB’s press release here.
The interpretive rule can be found here.