Navigating the Consumer Financial Protection Bureau’s Buy Now, Pay Later Rule

The Consumer Financial Protection Bureau (CFPB) has issued a Final Rule, referred to as the BNPL Rule, which brings Buy Now, Pay Later (BNPL) loans under the same consumer protection regulations as credit cards. According to an article by BCLP Law, this move comes after the CFPB observed inconsistencies in compliance measures among BNPL providers. 

The BNPL Rule mandates specific disclosure requirements, consumer liability limitations, dispute resolution procedures, and refund rights similar to those governing credit card transactions.

The BNPL Rule clarifies that BNPL digital accounts are considered “credit cards” under Regulation Z, despite not being physical cards, and thus subject to its provisions. Notably, BNPL transactions are categorized as closed-end consumer loans, typically repaid in four interest-free installments. Compliance requirements include detailed disclosures, periodic statements, and limitations on cardholder liability.

While the BNPL Rule emphasizes dispute and refund rights, it also mentions tabular format disclosures, leaving room for ambiguity regarding their applicability. Additionally, BNPL lenders are not subject to certain fee limitations imposed on credit card accounts, which could impact their revenue streams.

The article notes that the BNPL Rule is seen as disruptive to BNPL providers’ operations, especially for those who haven’t implemented Regulation Z provisions. The CFPB is collecting comments and may revise the rule, acknowledging industry confusion and the need for clarity on compliance obligations. However, the rule’s designation as a “major rule” under the Congressional Review Act means it could face congressional scrutiny.

Despite potential liability for past non-compliance, the CFPB offers protection for acts in good faith conformity with the interpretive rule. Nevertheless, BNPL providers face challenges in aligning their practices with Regulation Z requirements before the rule takes effect.