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CFPB takes steps to ensure consumers can dispute charges and get refunds on buy now, pay later loans
WASHINGTON DC – The Consumer Financial Protection Bureau (CFPB) today issued a interpretive rule This confirms that Buy Now Pay Later lenders are credit card providers. Consequently, Buy Now, Pay Later lenders must provide consumers with some important legal protections and rights that apply to conventional credit cards. This includes the right to dispute charges and demand a refund from the lender after returning a product purchased with a Buy Now, Pay Later loan. The CFPB released its investigation has been in the rapidly expanding Buy Now, Pay Later marketplace for more than two years and continues to see consumer complaints related to refunds and disputed transactions. Today’s action will help bring consistency to this market.
“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 the creditor will help them if they don’t receive what they were promised,” said the CFPB director. Rohit Chopra. “Regardless of whether a shopper swipes a credit card or uses Buy Now, Pay Later, they are entitled to important consumer protections under long-standing laws and regulations already in effect.”
The Buy Now, Pay Later market has expanded rapidly in recent years. Lenders advertise the purchase of products in four simple payments. The products are marketed as a way to help consumers pay for expensive products and services over time without having to pay interest. Today, both products, such as televisions and gaming systems, and services, such as airline tickets and cruises, can be purchased through Buy Now, Pay Later products. Buy now, pay later products are popular across all ages, races, and income levels.
The CFPB began study the Buy Now, Pay Later industry in 2021. The CFPB found that Buy Now, Pay Later is often used as a close substitute for conventional credit cards for purchasing goods and services. When people go to checkout online or in person at a store, Buy Now, Pay Later is often offered as an option along with the option to pay by credit card. Just as credit cards can be used in a variety of situations, not just in person with a swipe or swipe, Buy Now, Pay Later products are used through digital user accounts linked to websites, mobile apps , browser extensions, or integrations with merchant websites or mobile applications. Just like conventional credit cards, Buy Now, Pay Later combines payment processing and credit services while charging merchants transaction fees.
Because Buy Now, Pay Later lenders typically meet the criteria of existing laws and regulations like traditional credit card providers, they need to extend many of the same rights and protections as classic credit card providers. Importantly, these cover dispute and refund rights. On a market report, the CFPB found that more than 13% of Buy Now, Pay Later transactions involved a return or dispute. In 2021, people disputed or returned $1.8 billion in transactions across the five companies surveyed. Failure to provide dispute protections can create chaos for consumers when they return their merchandise or face other billing difficulties.
Today’s interpretive rule describes how Buy Now, Pay Later lenders meet the criteria for credit card providers under the Truth in Lending Act. For consumers, this means Buy Now, Pay Later lenders must:
- Investigate disputes: Buy Now, Pay Later lenders must investigate disputes initiated by consumers. Creditors must also suspend payment requirements during the investigation and sometimes must issue credits.
- Refund returned products or canceled services: When consumers return products or cancel services for refunds, Buy Now, Pay Later lenders must credit the refunds to consumers’ accounts.
- Provide billing statements: Consumers should receive periodic billing statements like those received for classic credit card accounts.
In 2021, the CFPB opened a investigation in Buy Now, Pay Later, focusing on debt accumulation, regulatory arbitration and data collection. The agency published its results in 2022, and highlighted the rapid expansion of the industry and growing risks for the consumer. Last year, the CFPB published its discoveries on borrowers’ financial profiles Buy Now, Pay Later.
Read the interpretive rule, Truth in Lending (Regulation Z); Using Digital User Accounts to Access Buy Now Pay Later Loans.
The CFPB encourages the public to submit comments on today’s interpretive rule. Given the rapid changes in this market, public comments will help inform where the CFPB can provide more clarity, including through rules and guidance, related to the Buy Now, Pay Later market. Comments will be accepted until August 1, 2024.
Read Director Chopra’s remarks on the interpretive rule.
Consumers can lodge complaints about financial products or services by visiting the CFPB website or calling (855) 411-CFPB (2372).
Employees who believe their company has violated federal consumer financial protection laws are encouraged to submit information about what they know to whistleblower@cfpb.gov.
The Consumer Financial Protection Bureau is a 21st century agency that implements and enforces federal consumer financial laws and ensures that markets for consumer financial products are fair, transparent and competitive. For more information visit www.consumerfinance.gov.