Buy now, pay later products to be treated like credit cards, CFPB says

BNPL lenders will get the credit card treatment, the CFPB said. (iStock)

The Consumer Financial Protection Bureau (CFPB) will apply credit card rules to Buy Now, Pay Later (BNPL) products. 

As a result, BNPL lenders must follow the federal Truth in Lending Act (TILA) and Regulation Z rules that apply to credit cards, according to a CFPB statement. That means consumers will be afforded some critical legal protections and rights that apply to conventional credit cards. These include a right to dispute charges and demand a refund from the lender after returning a product purchased through a BNPL service. 

A CFPB report released in 2022 found that more than 13% of BNPL transactions involved a disputed charge or a return. In 2021, consumers disputed or returned $1.8 billion in transactions at five large BNPL firms. 

Previously, the CFPB did not regulate BNPL providers, but the sector's rapid growth generated regulatory concern from the consumer watchdog. In enacting its interpretative rule, the CFPB has sought to ensure that BNPL financing programs were not gaining an advantage by avoiding certain Regulation Z requirements that traditional credit card issuers are subject to, according to Kilpatrick Townsend & Stockton LLP.

"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," CFPB Director Rohit Chopra said. "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."

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Consumers at greater risk of becoming overextended with BNPL

Many consumers use buy now, pay later (BNPL) services and are attracted to their ease of access. Still, they are at risk of becoming overextended, according to a recent Achieve survey.  

Over a third (34%) of respondents said they liked BNPL services because they allowed them to pay for purchases over time without paying interest, while 22% liked the option because it was easier to access than credit cards. Additionally, 76% said BNPL helped them improve their overall financial situation.

BNPL providers partner with retailers to allow shoppers to split the cost of their online purchases into multiple installments at checkout. Part of the appeal is that the installment payments, which typically begin within a few weeks of the purchase, are interest-free. Plus, the payment option requires no credit check or down payment, as in the case of credit cards or layaway.  

However, the survey said that BNPL is sometimes used by consumers with poor credit histories who are already debt-stressed. Moreover, 78% of respondents said it is easy to overextend using BNPL.

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How to manage BNPL debt

More than half (56%) of the respondents in the Achieve survey said that keeping track of multiple BNPL transactions takes a lot of work. Keeping a running list of all outstanding BNPL transactions is one way to get ahead of managing your debt. 

Achieve recommends that consumers note each transaction, the name of the BNPL provider, the number of payments remaining, the payment amount and how payments are made. Consumers should also consider BNPL products like any other form of credit, spend within their limit and have a repayment plan in mind before they make large purchases. They should also opt for autopay to avoid late fees for missed payments. 

"Whenever possible, pay from a checking account rather than a credit card to avoid incurring interest charges for these purchases later on, just make sure you always have enough money in your account to cover the monthly payment to avoid overdrafting," Achieve said.

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