The Consumer Financial Protection Bureau (CFPB) announced a new rule on Wednesday that requires buy now, pay later companies to provide consumers with the same legal rights and protections as credit card lenders. This includes the right to demand a refund and dispute transactions, addressing ongoing consumer complaints in the industry.
Buy now, pay later loans are often marketed as zero-interest or low-interest options that allow consumers to spread out payments for purchases over time. However, a report by the CFPB found that more than 13% of these transactions involved returns or disputes, totaling $1.8 billion in 2021.
CFPB Director Rohit Chopra emphasized that regardless of the payment method used, consumers are entitled to important protections under existing laws. Two major players in the industry, Affirm and Klarna, welcomed the new regulation, highlighting their commitment to providing transparency and choice for consumers.
The rule mandates that buy now, pay later lenders must investigate disputes, refund returned products or canceled services, and provide billing statements similar to those for credit card accounts. This move aims to prevent chaos for consumers when dealing with billing difficulties.
While some companies in the industry already operate at the standard set by the new rule, there are still differences between credit card lending and buy now, pay later loans. The CFPB’s action is seen as a significant step forward in regulating the industry and ensuring consumer protection.