BNPL Lawsuit: FTA vs. CFPB Rule

The Financial Technology Association (FTA), a trade group representing buy now, pay later (BNPL) providers, has recently filed a lawsuit against the U.S. Consumer Financial Protection Bureau (CFPB) to block a new rule that would extend credit card protections to the BNPL market. This legal action comes in response to regulations introduced by the CFPB earlier this year.

In June 2024, the CFPB announced new regulations that would grant BNPL customers the same legal protections as credit card users. These protections include:

• The ability to dispute charges

• The right to demand refunds for returned products

• Requirements for BNPL companies to investigate customer disputes

• Halting of payment requirements during dispute investigations

• Provision of regular billing statements to customers

Reasons for the Lawsuit

The FTA's lawsuit argues that the CFPB did not follow the necessary procedural steps when issuing its interpretive rule in May. The rule in question requires BNPL companies to:

• Provide regular billing statements

• Investigate disputes

• Offer refunds for returned products and canceled services

While the full details of the lawsuit are not publicly available, these arguments align with the industry's previous responses to increased regulatory scrutiny and the CFPB's efforts to bring BNPL services under stricter oversight.

Industry Response

The BNPL industry has shown mixed reactions to the new regulations:

Klarna, a major BNPL provider, stated that it already implements most of the customer remedies proposed by the CFPB.

However, Klarna also expressed confusion over the CFPB's decision, highlighting the significant differences between interest-free BNPL services and traditional credit cards.

Implications

This lawsuit represents a significant challenge to the CFPB's efforts to regulate the rapidly growing BNPL market. The outcome of this legal action could have far-reaching consequences for:

• Consumer protection in the fintech sector

• The regulatory landscape for BNPL services

• The future growth and operation of BNPL providers

Context

The CFPB's decision to regulate BNPL services comes amid increasing popularity of these platforms, especially among younger demographics:

Approximately one in seven Americans used a BNPL service last year, a 2 percentage point increase from 2022.

One in six individuals aged 18-44 utilized BNPL in 2023.

BNPL usage has expanded beyond discretionary purchases to include essential items like groceries.

As this legal battle unfolds, it will likely shape the future of the BNPL industry and its regulatory framework in the United States.

Our Opinion

While Klarna might already comply with certain aspects of these regulations, the concern lies in the broad-stroke application of these rules. It's essential for alternative lenders to understand that while this regulatory approach aims for consumer protection, it might not fully align with the operational and financial structures unique to BNPL products. Stay informed and consider adapting compliance strategies to mitigate potential impacts on business models and customer relations.

1-Minute Video: Checking Court Judgments - Risk Management Automation

Headlines You Don’t Want to Miss

Nova Credit Partners with HSBC and SoFi to Aid Immigrants

Nova Credit has partnered with HSBC USA and SoFi to enable immigrants in the US to share their international credit history with potential lenders.This partnership is significant because it provides a credible platform for immigrants to showcase their creditworth iness, making it easier for them to access credit and housing.

Bank of America Suggests Bitcoin as Hedge Against Rising U.S. Debt and Inflation

As the U.S. national debt is expected to surge to $35.75 trillion by 2024, Bank of America advocates for investing in Bitcoin, citing its potential as an inflation hedge due to its limited supply and decentralized nature. This recommendation highlights Bitcoin's role similar to digital gold, potentially safeguarding investors' assets amidst increasing inflation and a depreciating U.S. dollar.

TomoCredit Pivots to Tech Focus After Defaulting on SVB Loan

TomoCredit has opted to discontinue its credit card offerings to transition into a tech company, following a strategic default on a loan from Silicon Valley Bank intended for its initial credit card program. This pivot, underscored by strong investor support and new funding, aims to concentrate on more profitable and scalable business aspects.

Stripe Acquires Bridge to Boost Global E-Commerce Tax Solutions

Stripe is set to acquire Bridge, a tax automation software provider, enhancing its e-commerce capabilities across over 130 countries. This strategic move, spearheaded by Stripe's Chief Revenue Officer Mike Clayville, aims to simplify multi-jurisdictional tax calculations for businesses, aligning with the company's goals to expand its global footprint and drive profitability.