Feds Clarify Protections for Buy Now, Pay Later Users

The growing "buy now, pay later" industry has regulators catching up.

The Consumer Financial Protection Bureau stated on Wednesday that providers of the increasingly common point-of-sale loans are now have to provide some of the same safeguards as credit card users, such as the ability to challenge charges and request reimbursement for returned goods.

The action was praised by the White House, which described it as a component of a larger "crack down on corporate rip-offs."

CFPB officials stated at a press briefing on Tuesday that the agency, which guards against financial abuse, is acting in response to customer complaints of receiving the runaround from pay-later providers when contesting a charge or trying to return things.

Shoppers welcomed the interest-free option to finance anything from apparel to vacation, and the loans allowed borrowers to spread out payments over a period of time, often six weeks in four installments. The CFPB said that throughout the epidemic, loan usage increased dramatically, contributing to a rise in internet buying.

According to an agency interpretation rule, because BNPL lenders are essentially credit card issuers, they are required to offer their customers the standard safeguards associated with using cards to make purchases.

The interpretation regulation, which takes effect in 60 days, also requires BNPL lenders to give customers recurring billing statements that resemble those for regular credit card accounts, the regulator stated.

Under the new rules, BNPL lenders must now investigate disputes initiated by consumers, pausing payment requirements during the process. They are also required to refund returned products or canceled services to consumers' accounts. Additionally, BNPL lenders must provide consumers with periodic billing statements similar to those received for standard credit cards. Although BNPL lenders will face tighter government oversight, the new CFPB rule does not require providers to verify that borrowers are able to repay the loans, as consumer advocates have called for.

According to U.S. consumers, the sector still exposes them to organizations that are opaque about their business strategy. Fund for PIRG Education.

Danger of Accruing Debt

In addition to using a credit card, buy now, pay later is becoming a more popular alternative. The five largest companies in the market generated $24 billion in loans in 2021, which is a more than 10-fold increase from $2 billion in 2019, according to the CFPB.

BNPL is used by half of consumers between the ages of 25 and 44, according to Bankrate. According to Adobe Analytics, the choice may result in spending of up to $84 billion, a 13% increase over the previous year.

But last year, Consumer Reports issued a warning about BNPL plans, which can have high late penalties.

Generally speaking, neither consumer credit reports nor scores are affected by the loans provided by firms like Affirm, Afterpay, Klarna, PayPal, and Zip. This has raised worries that consumers may be taking on excessive debt that is hidden from authorities or other lenders.

By declaring in February that it would report loans made through its Apple Pay Later service to one of the credit agencies, Experian, Apple defied that trend.

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