Buy now, pay later regulations: 4 things you need to know before shopping

On May 22, 2024, the Consumer Financial Protection Bureau issued a new rule classifying buy now, pay later (BNPL) lenders as credit card providers. This means that BNPL companies are now subject to the same regulatory standards as conventional credit card issuers.

But what exactly are these regulations? And what does this mean for consumers? Here’s what you need to know.

What is Buy now, pay later?

BNPL is a type of installment loan that allows consumers to pay for a purchase in a series of four or fewer payments. Buyers typically pay a small amount or nothing upfront and then split the total cost into several payments over time, which may or may not involve interest.

You’ve probably come across BNPL offers if you shop online. It may appear as a separate option at checkout. When you select this option, you will be asked to provide certain personal information, including your name, date of birth, and bank account or debit card information.

BNPL loans are becoming increasingly popular, especially as inflation and rising costs make everyday purchases more expensive. The industry is expected to grow to $700 billion by 2028.

The top BNPL providers include:

Klarna
Supplement
Confirm
Width
Mora

Although BNPL loans are typically interest-free, they do come with certain risks, including:

Late payment fees
Other hidden fees
Risk of overspending on multiple loans
Impact on your creditworthiness

New BNPL Regulations

BNPL companies have been criticized for their lack of transparency. New regulations that came into force in May last year require these companies to provide buyers with more information.

Because BNPL loans are now regulated like credit cards, they must meet the same compliance standards as credit card providers. This includes:

Returns Assurance: BNPL lenders must now refund installments for canceled or returned orders.
Dispute investigation: If a buyer has a problem with a BNPL transaction, the lender must stop payments and investigate the dispute.
Providing billing statements: BNPL lenders are required to provide periodic billing statements so that the customer knows how much and when to pay for their account.

These regulations could come at a cost to popular BNPL companies, and not all are happy about it: Klarna recently published a post supporting BNPL regulations, but criticized the decision to treat BNPL loans like credit cards.

What does this mean for consumers?

The new regulations do not mean the end of the BNPL industry. When shopping online or in-store, you’ll still have the option to buy now and pay later. Here’s how these laws may affect you:

You do not risk losing your payment if you cancel or return your order.
You can expect settlement statements from your BNPL lender.
If you have a problem with your loan, you can ask your lender to stop payments and confirm the dispute. However, the process will vary for each lender.
BNPL is still not 100% risk-free.

Shop safely with BNPL

Regulating BNPL providers is an important step towards protecting consumers, but it does not completely eliminate the risk. The new regulations will not prevent buyers from overspending. They also don’t require BNPL companies to report interactions with credit bureaus, so you may not know how these loans will affect your credit.

To protect your funds while shopping, consider:

If possible, you pay in advance
Set up automatic repayment to avoid missed loan payments
Limited to one BNPL loan at a time

Like any loan, BNPL can be dangerous if you take on too much debt at once. Before you choose BNPL at the checkout, make sure you can cover the full amount of your purchase – if you can’t afford it now, you shouldn’t try to pay for it later.

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