CFPB says BNPL Lenders Must Follow Credit Card Rules

The US Consumer Financial Protection Bureau (CFPB) has ruled that buy now, pay later (BNPL) lenders should be subject to the same regulations as credit card companies.

This decision means BNPL lenders must provide consumers with key legal protections and rights, such as the ability to dispute charges and receive refunds for returned products purchased with BNPL loans.

The CFPB's decision comes after a two-year inquiry into the rapidly growing BNPL market, which revealed that over 13% of BNPL transactions involved returns or disputes, amounting to $1.8 billion in 2021 across five surveyed firms.

CFPB Director Rohit Chopra emphasizes that BNPL services, like credit cards, combine payment processing and credit services while charging transaction fees to merchants, and should therefore be treated similarly.

Under this ruling, consumers using BNPL services will be entitled to important protections, including the right to have disputes investigated, receive refunds for returned products or cancelled services, and receive periodic billing statements. The CFPB is accepting comments on the findings until August 1st.

Our Opinion:

While the ruling promises enhanced consumer protection and responsible financial behavior, it also brings into focus larger issues such as potential stifling of innovation, impact on financial exclusion and rise in operating costs. The CFPB's findings on returns and disputes don't necessarily indicate a systemic issue with BNPL. Instead of a one-size-fits-all approach, the CFPB may collaborate with the industry to develop a tailored regulatory framework that balances consumer protection and encourages growth and innovation in alternative finance.

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