Consumer Financial Protection Bureau imposes credit card regulations on ‘Buy now, pay later’ services: Tech: Tech Times

Buy now, pay later (BNPL) services are now required to adopt practices similar to those of traditional credit card providers.

This change comes as the CFPB enforces regulations requiring BNPL companies to proactively manage disputed purchases, process refunds and provide customers with monthly billing statements.

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Adopting practices similar to those of credit card providers

Buy now, pay later (BNPL) services must now operate under guidelines similar to those for credit card providers.

The Verge reported that the Consumer Financial Protection Bureau (CFPB) has announced an interpretive rule that will reclassify BNPL services as credit card providers.

This means BNPL companies now have to deal with disputed purchases, refund money and provide monthly billing statements. BNPL services allow customers to buy products and pay in interest-free installments.

The new rules require these companies to offer refunds for returned products or canceled services and to send periodic billing statements to users.

The CFPB’s decision follows an investigation into BNPL services that found the services are often used as an alternative to traditional credit cards. The move aims to improve consumer protection in the rapidly growing BNPL market.

BNPL Services Answers

The announcement marks significant progress in the regulation of BNPL services, an area where Klarna has long supported improvement.

Despite this progress, Klarna expressed confusion over the CFPB’s decision to classify BNPL services as equivalent to credit cards.

The company highlighted important differences between interest-free BNPL offers and credit cards, noting that credit card companies typically profit from high-interest payments that can push customers into debt.

Klarna stressed that its business model includes customer protections such as refunds, investigating disputes and providing detailed purchase information.

The company hopes the CFPB will recognize the main differences between BNPL and credit cards because they work in fundamentally different ways. Klarna’s BNPL contract is short-term, with no interest credit and no fees if repaid on time.

At Klarna, every transaction is guaranteed to ensure that the loan is only provided to consumers who can repay, as evidenced by global delinquencies of 1%.

This model provides consumers with a transparent and predictable repayment structure, making it easier to manage their finances without the burden of accruing interest.

Affirm CEO Max Levchin expressed satisfaction with the CFPB promoting consistent industry standards, emphasizing that many of these regulations are already consistent with Affirm’s existing practices.

He stressed that the company is pleased to formally recognize and enforce standards that Affirm has long adhered to, reinforcing their commitment to customer protection and transparency in the BNPL sector.

Read also: Australia introduces regulations on “buy now, pay later” financial companies in line with credit law

As credit card interest rates have increased, BNPL services have gained significant popularity, prompting Apple to even launch its own BNPL offering.

However, there are concerns about the potential of BNPL services to encourage overspending and debt accumulation.

According to a CNBC report, the scale of consumer debt associated with BNPL services remains unclear because these companies are not required to report loans to credit reporting agencies.

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