CFPB issues an interpretive rule comparing BNPL accounts to credit cards under Regulation Z | Orrick, Herrington & Sutcliffe LLP

On May 22, the CFPB issued an interpretive rule outlining its position that certain consumer protection provisions in Regulation Z apply to Buy Now, Pay Later (BNPL) accounts. The interpretive rule stated that “digital user accounts” used to access BNPL credit are considered “credit cards” for the purposes of Regulation Z.

According to the CFPB, BNPL “digital user accounts” fall within the definition of a credit card in TILA and Regulation Z because they qualify as “other credit device” or “other single credit device.” The CFPB compared its interpretation of a “credit device” to the Fed’s interpretation of an “access device” in Regulation E, which included nonphysical payment codes for initiating electronic funds transfers. Additionally, the CFPB found that because the BNPL “digital user accounts” were eligible “for credit from time to time,” they met the definition of a “credit card” under Regulation Z.

As a result, the CFPB’s interpretive rule provided that entities issuing such accounts are “card issuers” and therefore “creditors” that are “broadly subject” to the regulations contained in Subpart B of Regulation Z. The interpretive rule states that although Subpart B was entitled to ‘Open-End Credit’, however, applied to closed-end BNPL credit provided through a user’s digital account if such credit was not subject to a finance charge and was not payable under a written agreement in more than four installments. Subpart B contained provisions applicable to, among other things, disclosures, consumer disputes, billing errors, and refunds.

The CFPB will seek public comment on the interpretive rule, but reserves the right to proceed without amendments if they are not warranted. The CFPB will submit a report of the interpretive rule to the U.S. Senate, House of Representatives, and the U.S. Comptroller General (the head of the GAO) prior to the rule’s published effective date.