In a move to address consumer complaints and ensure consistent protections in the rapidly expanding Buy Now, Pay Later market, the Consumer Financial Protection Bureau (CFPB) has issued an interpretive rule confirming that Buy Now, Pay Later lenders are considered credit card providers. This means that these lenders must offer consumers important legal protections and rights that are applicable to traditional credit cards.

Buy Now, Pay Later loans have gained significant popularity over the past few years as a convenient way for consumers to purchase goods and services over time without paying interest. This payment method, available for a wide range of products and services including electronics, airline tickets, and cruises, has attracted customers across different age groups, races, and income levels.

The CFPB launched an inquiry into the Buy Now, Pay Later market more than two years ago, and since then, it has received numerous consumer complaints regarding refunds and disputed transactions. To address these issues and bring consistency to the market, the CFPB has taken action.

CFPB Director Rohit Chopra emphasizes that consumers who choose Buy Now, Pay Later should have the same protections as those who use traditional credit cards. He states, "Regardless of whether a shopper swipes a credit card or uses Buy Now, Pay Later, they are entitled to important consumer protections under longstanding laws and regulations already on the books."

By categorizing Buy Now, Pay Later lenders as credit card providers, the CFPB ensures that consumers have the right to dispute charges and demand refunds for returned products purchased through Buy Now, Pay Later loans. A recent market report by the CFPB revealed that over 13% of Buy Now, Pay Later transactions involved returns or disputes, with a staggering $1.8 billion disputed or returned in 2021 across the five firms surveyed.

Under the new interpretive rule, Buy Now, Pay Later lenders are required to investigate disputes initiated by consumers, pause payment requirements during investigations, and issue credits when necessary. Additionally, lenders must credit the refunds for returned products or canceled services to consumers' accounts. Consumers will also receive billing statements comparable to those provided for traditional credit card accounts.

The CFPB has encouraged public comments on the interpretive rule, as it aims to gain insights and provide further clarity on the rapidly evolving Buy Now, Pay Later market. These comments can help shape future rules and guidance related to the industry, and they will be accepted until August 1, 2024.

It is worth noting that the CFPB's inquiry into Buy Now, Pay Later focused on debt accumulation, regulatory arbitrage, and data harvesting. The agency's findings highlighted the fast expansion of the industry and the associated risks for consumers. In 2021, the CFPB published a report on the financial profiles of Buy Now, Pay Later borrowers, shedding light on the market's dynamics.

Consumers who encounter issues with financial products or services can submit complaints to the CFPB through its website or via phone. Additionally, individuals with information regarding violations of federal consumer financial protection laws are encouraged to report their knowledge to whistleblower@cfpb.gov.

The CFPB's mission remains to implement and enforce federal consumer financial law, ensuring fair, transparent, and competitive markets for consumer financial products. For more information, visit www.consumerfinance.gov.