William Simpson
Regulators are trying to keep up with the growing “buy now, pay later” business.
Providers of loans at increasingly popular point-of-sale outlets must now offer some of the same protections offered to credit card users, including the right to dispute charges and demand refunds for returned purchases, the Consumer Financial Protection Bureau announced Wednesday. .
The agency, which protects consumers from financial abuse, is taking action in response to customer complaints of receiving confusion from pay-later providers when they dispute a charge or try to return items, CFPB officials said at a news conference Tuesday. -fair.
Welcomed by shoppers as a way to make interest-free purchases, from clothes to travel, the loans allow borrowers to pay back over time, typically in four installments over six weeks. Use of loans increased during the pandemichelping drive an online shopping boom, the CFPB noted.
Similar to credit cards
An interpretive rule issued by the agency states that BNPL lenders are effectively credit card providers and therefore must provide consumers with the basic protections that come with purchasing items with plastic.
“When consumers check out and choose buy now, pay later, they don’t know if they will receive a refund if they return the product or if their lender will help them if they don’t receive what they were promised,” CFPB Director Rohit Chopra said in a statement . “Regardless of whether a shopper swipes a credit card or buy now, pay later, they are entitled to important consumer protections under long-standing laws and regulations already in effect.”
Additionally, BNPL lenders will have to provide users with periodic billing statements similar to those issued for traditional credit card accounts under the interpretive rule, which takes effect in 60 days, the agency said.
Under the new rules, BNPL lenders must now:
- Investigate consumer-initiated disputes, pausing payment demands in the process.
- Refund returned products or canceled services to consumer accounts.
- Provide consumers with periodic billing statements, such as those received for standard credit cards.
Risk of accumulating debt
Buy now, pay later is increasingly offered as an option alongside credit card payments, with the industry’s five biggest players generating $24 billion in loans in 2021 – a more than 10x increase over the U.S. $2 billion in 2019, according to to the CFPB.
Half of shoppers ages 25 to 44 use BNPL, according to Bankrate. The option could generate up to $84 billion in spending, a 13% increase over last year, according to Adobe Analytics.
But BNPL plans can include hefty fees for those who miss paymentsConsumer Reports warned last year.
Loans offered by companies such as Affirm, Afterpay, Klarna, PayPal and Zip are typically not reported on consumers’ credit reports, nor are they reflected in consumer credit scores. This has raised concerns that users may be taking on too much debt that is not transparent to other lenders or regulators.
Apple bucked this trend by announcing in February that it would report loans made through its Apple Pay Later program to Experian, one of the credit bureaus.
