Washington, D.C. – The Consumer Financial Protection Bureau (CFPB) issued a significant ruling on Wednesday, extending federal protections to customers of the rapidly growing buy now, pay later industry. The new “interpretive rule” now considers buy now, pay later lenders to be on par with traditional credit card providers under the Truth in Lending Act, ensuring consumers are entitled to the same safeguards across the board.
Leading companies in the industry, such as Affirm, Klarna, and PayPal, will now be required to comply with regulations that mandate refunds for returned items or canceled services, investigation of merchant disputes, halting payments during said investigations, and providing transparent fee disclosures on bills. CFPB Director Rohit Chopra emphasized the importance of upholding consumer rights, regardless of the payment method used.
Following a recent victory in the Supreme Court, the CFPB continues its efforts to regulate the financial industry, aiming to protect consumers and promote fair practices. The agency’s scrutiny of the buy now, pay later sector began in late 2021, highlighting concerns about the exponential growth of digital installment loans and the potential for customers to accrue unmanageable debt.
Chopra stressed the significance of ensuring that these innovative financial services comply with existing laws and regulations, preventing them from exploiting loopholes to the detriment of consumers. The new ruling aims to standardize consumer protections within the buy now, pay later industry and will take effect in 60 days, with the agency welcoming public feedback on the measure.
With the looming specter of increased regulation, buy now, pay later providers have anticipated challenges in aligning with traditional credit card rules. Some industry players argue that their no-interest products offer consumers a more favorable alternative to credit cards, advocating for a balanced regulatory framework that suits the specific risks of their business model.
As the buy now, pay later sector braces for potential legal battles over regulatory compliance, the CFPB remains steadfast in its mission to safeguard consumer interests and promote financial transparency. The industry’s response to the new rule may mirror past resistance from other financial entities, raising the prospect of legal disputes and challenges to implementation in the future.