‘Buy now, pay later’ needs better oversight, says Consumer Financial Protection Bureau – San Bernardino Sun

Consumer Financial Protection Bureau Director Rohit Chopra said the buy now, pay later industry is a major part of the consumer lending market that offers significant alternatives to other lending options. “We want to make sure they don’t gain an advantage by circumventing existing regulations,” he said. (AP Photo/Jacquelyn Martin, File)

Authors: Paige Smith and Paulina Cachero | Bloomberg

Buy now, pay later lenders such as Block Inc.’s Afterpay, Affirm Holdings and Klarna Bank AB should be treated like credit card providers in some respects, according to one U.S. financial regulator.

The U.S. Consumer Financial Protection Bureau on Wednesday released a new interpretation of existing laws and regulations to clarify that, like credit card providers, BNPL companies must investigate disputes, refund returned products or canceled services, and provide billing statements.

This means that BNPL companies should be treated more like those that offer credit cards, but not entirely: the CFPB has not interpreted the existing framework to say that BNPL companies must assess whether a consumer has the ability to repay short-term installment loans.

“When Congress defined credit cards, it included devices both known and unknown,” CFPB Director Rohit Chopra said on a call with reporters. “While we think of a credit card as a piece of plastic, it covers a wide range of devices, including digital forms of credit payments.”

Chopra said the BNPL industry is now a major part of the consumer lending market that offers significant alternatives to other lending options. “We want to make sure they don’t gain an advantage by circumventing existing regulations,” he said.

The CFPB’s interpretation of the law will take effect in 60 days.

Buy now, pay later businesses exploded in popularity with the exponential growth of e-commerce during the pandemic and have remained in business ever since, expanding their offerings and scaling up. The consumer watchdog’s statement is the first public statement in support of bringing BNPL companies into line with the existing regulatory framework and follows a September 2022 report on the industry.

Unlike the credit card industry, where large banks and other card issuers are subject to direct oversight by the CFPB, most large buy now, pay later companies do not receive regular visits from the agency. At least one exception is Affirm, which says it is regulated by the CFPB. This means the agency’s inspectors will be able to determine whether it is violating existing credit card rules that apply to BNPL companies.

The CFPB will solicit comments on whether further clarification is needed, but agency officials said they are not actively developing new rules to regulate BNPL companies. Other regulators, including the Office of the Comptroller of the Currency, have previously warned about the risks of buy now, pay later loans.

As more consumers turn to alternative payment methods, large financial institutions including PayPal Holdings Inc., US Bancorp and Citizens Financial Group Inc. have also entered the fray. Large banks including Citigroup Inc. and JPMorgan Chase & Co. They also offer pay-over-time offers on their credit cards.