STATEMENT: New Buy Now, Pay Later rules will help consumers; more protections needed

CFPB says BNPL firms must allow disputes, easy refunds for returns and provide billing statements

WASHINGTON – The Consumer Financial Protection Bureau (CFPB) issued rules Wednesday classifying Buy Now, Pay Later (BNPL) lenders as credit card providers that must follow some rules that apply to credit cards. This will give consumers legal protections including the rights to:

• Dispute charges.
• Easily get a refund directly from the lender for a returned item.
• Get billing statements. 

A CFPB report released in 2022 found that more than 13% of BNPL transactions involved a disputed charge or a return. In 2021, consumers disputed or returned $1.8 billion in transactions at five large BNPL firms, the CFPB said. Problems with BNPL go much deeper than just returns, disputes and billing statements. U.S. PIRG Education Fund’s 2022 report, the Hidden Costs of Buy Now, Pay Later, based on a review of complaints to the CFPB and the Better Business Bureau, showed that hidden fees, interest, debt collection problems and poor customer service can harm consumers.

Companies such as Affirm, Klarna, Afterpay, PayPal and Zip (formerly Quadpay) dominate the BNPL industry. The CFPB launched an investigation into them and their competitors in 2021, following an avalanche of consumer complaints. 

In response, U.S. PIRG Education Fund Consumer Watchdog Teresa Murray said:

“We at PIRG think of these transactions as Buy Now, Get Ripped Off Later. These BNPL companies often have intentionally operated outside of traditional regulations, arguing they’re not lenders or credit cards but instead, they’re some kind of financing unicorn that actually helps people. Those days are over. BNPL doesn’t fill a need; it fills a want. This is obvious when consumers are offered a ‘deal’ to pay for a $30 pair of shoes or a $20 set of earbuds over six weeks.

“The rules announced today are welcomed first steps to better protect consumers, and we applaud the CFPB for recognizing BNPL companies are credit card providers. We believe additional protections are needed, including clarity on fees and back interest, and we look forward to providing comments to the CFPB as it considers stronger rules affecting our wallets. The CFPB says it will accept public comments about the rules through Aug. 1. 

“We believe the BNPL business model isn’t transparent and that some companies have worked to evade consumer protection laws. We’re particularly concerned about younger people, who are the key target demographic for BNPL plans and are encouraged to buy stuff they don’t need and can’t afford. They often don’t understand what they’re getting themselves into because the disclosures are vague. This needs to change.”

See our consumer guide: BNPL, What to Know Before You Sign Up