Fintech trade group sues to halt CFPB’s buy now, pay later rule

The Financial Technology Association, a fintech trade group representing buy now, pay later providers, is suing the U.S. Consumer Financial Protection Bureau to block a new rule that would apply credit card protections to the BNPL market, according to a Friday media report.

The consumer watchdog failed to follow proper procedures before issuing its interpretive rule in May that mandates BNPL firms to provide regular billing statements, investigate customer disputes, and offer refunds for returned products or canceled services, the FTA said in the lawsuit filed in the U.S. District Court of the District of Columbia, Bloomberg reported.

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

BNPL providers, such Affirm Holdings (NASDAQ:AFRM), Klarna (KLAR), Block (NYSE:SQ) and PayPal Holdings (NASDAQ:PYPL), enable customers to make purchases and pay for them in installments over time, instead of paying the full amount upfront.

“The CFPB is seeking to fundamentally change the regulatory treatment of pay-in-four BNPL products without adhering to required rulemaking procedures, in excess of its statutory authority, and in an unreasonable manner,” FTA President and CEO Penny Lee said in a statement, as quoted by Bloomberg.

Note that the rule took effect on July 30, 2024, though the CFPB said in August it would allow companies a grace period before enforcing it.