CFPB to apply some credit-card rules to buy now, pay later firms

The U.S. Consumer Financial Protection Bureau issued Wednesday an interpretive rule that will treat buy now, pay later lenders essentially the same as credit-card issuers for the purpose of consumer protection.

Consumers can use a BNPL service to make purchases and pay for them over time. Akin to a personal loan, BNPL plans allow users to split their payments for a product or service into equal installments over a period of time, often without having to pay interest so long as the payments are submitted on time and in full.

In an effort to bring more oversight to the fast-growing space, BNPL providers, such as Affirm (NASDAQ:AFRM), Klarna (KLAR), PayPal (NASDAQ:PYPL) and Block’s (NYSE:SQ) Afterpay, will be required to refund products that have been returned, investigate merchant disputes and, provide bills with fee disclosures, the consumer watchdog said.

Credit-card firms currently comply with such rules under the decades-old Truth in Lending Act.

“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,” CFPB Director Rohit Chopra said in a statement.

The CFPB, formed after the 2008 financial crisis, has been probing the BNPL sector since late 2021. The agency has been clamping down on the wider financials space. In 2022, it started to scrutinize credit card companies’ policies for charging late fees, only to finalize a rule earlier this year that caps credit card late fees at $8 (vs. $32 before).