HomeTop StoriesNew federal rules to protect shoppers who buy now and pay later

New federal rules to protect shoppers who buy now and pay later

Buy now, pay later options associated with low credit scores

Buy now, pay later options associated with low credit scores


Regulators are playing catch-up to the fast-growing “buy now, pay later” business.

Providers of the increasingly popular point-of-sale loans must now offer some of the same protections as credit card users, including the right to dispute charges and seek refunds for returned purchases, the Consumer Financial Protection Bureau announced Wednesday.

The agency, which protects consumers from financial abuse, is taking the step in response to customer complaints about being given a workaround by late-paying providers when disputing a charge or attempting to return items, CFPB officials said Tuesday during a press conference.

Welcomed by shoppers as an interest-free way to make purchases from clothing to travel, the loans let borrowers pay over time, usually in four installments over six weeks. Use of the loans increased during the pandemiccontributing to the online shopping boom, the CFPB said.

Similar to credit cards

An interpretive rule from the agency states that BNPL lenders are essentially credit card providers, so they must offer consumers basic protections that come with buying things with plastic.

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“When consumers check out and opt for buy now, pay later, they don’t know whether they will get a refund if they return their product or whether the lender will help them if they don’t get what was promised,” said CFPB Director Rohit. Chopra said in a statement. “Regardless of whether a customer uses a credit card or buy now, pay later, he or she is entitled to important consumer protections under the longstanding laws and regulations that already exist.”

In addition, BNPL lenders will be required to provide users with periodic billing statements similar to those for traditional credit card accounts, under the interpretive rule, which takes effect within 60 days, the agency said.

Under the new rules, BNPL lenders must now:

  • Investigate consumer-initiated disputes where payment requirements are interrupted during the process.
  • Refunds of returned products or canceled services to consumers’ accounts.
  • Provide consumers with periodic billing statements, such as those for standard credit cards.
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Risk of accumulating debt

Buy now, pay later is increasingly being offered as an option to paying by credit card, with the industry’s five biggest players set to generate $24 billion in loans in 2021 – a more than tenfold increase from $2 billion in 2019, according to the CFPB.

According to Bankrate, half of shoppers aged 25 to 44 use BNPL. According to Adobe Analytics, the option could generate up to $84 billion in spending, up 13% from last year.

But BNPL plans can include that high costs for those who miss paymentsConsumer Reports warned last year.

The loans offered by companies like Affirm, Afterpay, Klarna, PayPal, and Zip are typically not reported on consumers’ credit reports, nor are they reflected in consumer credit scores. That has led to concerns that users may be taking on too much debt that is not transparent to other lenders or regulators.

Apple bucked the trend by announcing in February that it would pass loans made through its Apple Pay Later program to Experian, one of the credit bureaus.

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