Consumer oversight to regulate ‘buy now, pay later’ lenders like credit cards

The government’s consumer watchdog moved on Wednesday to to rank Popular “buy now, pay later” apps like credit cards that would extend customer protection to millions of users, including the ability to dispute charges and request refunds.

“Buy now, pay later” programs, also known as BNPL, allow consumers to pay for products in interest-free installments. Companies offering these services include Affirm, Klarna, and PayPal.

The Consumer Financial Protection Bureau (CFPB) began investigating BNPL in 2021 amid rapid market expansion and concerns about rising debt and the use of consumer data.

A 2022 CFPB market analysis found that BNPL exploded during the pandemic, with five companies making 180 million loans totaling more than $24 billion in 2021, nearly a tenfold increase from 2019. More than 13% of BNPL transactions involved a return , the report concluded, with consumers disputing or returning $1.8. billions in transactions across the five companies.

“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 CFPB states that the measure will bring “consistency” to the market. It is scheduled to take effect 60 days after it is published in the Federal Register.

In a statement, Affirm said it was “encouraged” by the CFPB’s action to promote “consistent industry standards.”

“We urge other companies offering buy now, pay later products to deliver on the industry promise to provide consumers with a more flexible and transparent alternative to other payment options,” Affirm said in a statement. declaration.

But Klarna said it was “disconcerting that the CFPB did not recognize the fundamental differences between BNPL and credit cards.”

“Trying to regulate BNPL like a credit card is like comparing apples to oranges,” Klarna said in a statement, arguing that the new rule will not help reduce consumer credit card debt.

Total U.S. credit card debt reached $1.13 trillion during the fourth quarter of 2023, the highest balance since at least 2003, according to latest report of the New York Federal Reserve.

But Chopra said BNPL is now “an important part of the consumer credit market” and that the rule is intended to clarify the laws and regulations governing BNPL.

The agency is also accepting comments until August 1, 2024.

“Given the growth in outstanding consumer credit and the increase in new forms of credit, the CFPB will continue to carefully monitor these markets and take steps to ensure that consumers are treated fairly,” Chopra said.

This story originally appeared on thehill.com read the full story