WASHINGTON (CN) — Buy now, pay later lenders soon will have to provide consumers the same legal protections as conventional credit card companies.
The Consumer Financial Protection Bureau on Wednesday announced its intention to require the protections after a two-year inquiry into the expanding market.
“While we typically think of a credit card as a piece of plastic with an embossed number, the term encompasses a wide range of devices, including those no longer commonly used,” the bureau's director Rohit Chopra told reporters Wednesday.
“Essentially, any mechanism, tool, or procedure that consumers can use from time to time to buy goods or services on credit gets the protections that consumers have come to know and expect with credit cards.”
Congress created the Consumer Financial Protection Bureau after the 2007 mortgage lending crisis to regulate banks, payday lenders, debt collectors and other financial institutions.
Buy now, pay later loans are becoming more ubiquitous in online transactions. They are essentially microloans that allow consumers to buy products over four payments with no interest. The service is frequently offered alongside the option to pay by credit card — and has expanded to cover products like televisions and gaming systems and services like airline tickets and cruises.
Regulators started investigating the industry in 2021 and said they continue to see complaints related to refunds and disputed transactions. More than 13% of buy now, pay later transactions involved a return or disputed charge, with consumers disputing or returning $1.8 billion in transactions, according to a review of five firms.
Despite the volume of complaints, the bureau said, lenders aren't providing dispute protections, which “can create chaos for consumers when they return their merchandise or encounter other billing difficulties.”
“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,” 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.”
Under the new regulations lenders also will be required to investigate disputes initiated by consumers and pause payments during the investigation. They also must credit refunds to customers’ accounts and provide periodic billing statements for consumers.
Jon Donenberg, deputy director of the White House National Economic Council, said the regulations ensure lenders “abide by the law.”
“President Biden has encouraged his administration to do everything possible to crack down on corporate rip-offs,” Donenberg said in a statement. “The Biden-Harris Administration will continue to take action to protect consumers and keep more money in Americans’ pockets.”
Adam Rust, director of financial services for the nonprofit Consumer Federation of America, said buy now, pay later lenders were operating in a “regulatory loophole” that the new regulation closes.
“By stating clearly that BNPL lenders are card issuers, and their accounts are credit cards, the CFPB has ensured that when consumers want to contest a charge or seek a refund, it will not matter if they used a BNPL loan or a credit card,” Rust said in a statement. “Similarly, in requiring BNPL lenders to provide a periodic statement, the CFPB is holding the industry accountable to the same standards as credit card issuers for providing timely and complete account information to consumers.”
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