The Consumer Financial Protection Bureau (CFPB) has issued new guidance that extends consumer protections to borrowers using buy now, pay later (BNPL) loans. This type of short-term financing allows consumers to pay for products and services in online installments, such as four biweekly payments.
BNPL loans have seen a significant increase in popularity over the past few years, with usage skyrocketing almost 1,000% from 2019 to 2022, according to a CFPB report. However, until now, protections for BNPL loans have not been standardized. With the new rule in place, BNPL lenders will now be required to provide protections similar to those offered by credit card issuers.
Under the new interpretive rule, BNPL lenders will be considered credit card providers and must offer consumers the right to dispute charges, receive refunds for returned products or canceled services, and receive monthly statements similar to those issued by traditional credit card companies.
CFPB Director Rohit Chopra emphasized the importance of these consumer protections, stating, “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.”
The new ruling will go into effect in approximately two months, giving BNPL providers time to adjust their practices to comply with the new regulations. While BNPL loans offer some advantages, such as no-interest installment options and no hard credit checks, borrowers should be aware of the risks, including the potential for accruing debt and incurring late fees.