June 23, 2024

The Consumer Financial Protection Bureau (CFPB) is cracking down on Buy Now, Pay Later loans, applying some of the same rules and guidelines that apply to credit cards.

Buy Now, Pay Later has been growing in popularity, especially with economic uncertainty impacting buying patterns. Unfortunately, the model is ripe for unscrupulous companies to take advantage of consumers, prompting the CFPB to take action.

The agency outlined its guidelines in a post on its site.

Accordingly, Buy Now, Pay Later lenders must provide consumers some key 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 with a Buy Now, Pay Later loan. The CFPB launched its inquiry into the rapidly expanding Buy Now, Pay Later market more than two years ago and continues to see consumer complaints related to refunds and disputed transactions. Today’s action will help bring consistency to this market.

The CFPB highlights how much Buy Now, Pay Later has expanded, being used for both products and services that traditionally were never considered for the model.

The Buy Now, Pay Later market has expanded rapidly over the past few years. Lenders advertise buying products over four simple payments. Products are marketed as a way to help consumers pay for expensive products and services over time without having to pay interest. Today, both products, like televisions and gaming systems, and services, like airline tickets and cruises, can be purchased through Buy Now, Pay Later products. Buy Now, Pay Later products are popular across ages, races, and income levels.

“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,” said CFPB Director Rohit Chopra. “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.”

Buy Now, Pay Later lenders must meet requirements outlined in the Truth in Lending Act, including:

  • Investigate disputes: Buy Now, Pay Later lenders must investigate disputes that consumers initiate. Lenders must also pause payment requirements during the investigation and sometimes must issue credits.
  • Refund returned products or canceled services: When consumers return products or cancel services for a refund, Buy Now, Pay Later lenders must credit the refunds to consumers’ accounts.
  • Provide billing statements: Consumers must receive periodic billing statements like the ones received for classic credit card accounts.

The guidelines should go a long way toward protecting consumers from unethical lenders.