Agency’s interpretive rule addresses Buy Now, Pay Later lender obligations to investigate disputes and refund charges

May 26, 2024 - WASHINGTON, D.C. – The Consumer Financial Protection Bureau (CFPB) last week issued an interpretive rule that confirms that Buy Now, Pay Later lenders are credit card providers. Accordingly, Buy Now, Pay Later lenders must provide consumers some key legal protections and rights that apply to conventional credit cards. These include a 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 launched its inquiry into the rapidly expanding Buy Now, Pay Later market more than two years ago 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 get a refund if they return their product or whether the lender will help them if they didn’t get what was promised,” said 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 longstanding laws and regulations already on the books.”

The Buy Now, Pay Later market has expanded rapidly over the past few years. Lenders advertise buying products over four simple payments. 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, like televisions and gaming systems, and services, like airline tickets and cruises, can be purchased through Buy Now, Pay Later products. Buy Now, Pay Later products are popular across ages, races, and income levels.

The CFPB began studying 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 to purchase goods and services. When people go to check out online or in person at a store, Buy Now, Pay Later is frequently offered as an option alongside the option to pay with a credit card. Just as credit cards can be used in a variety of situations, and not just in-person with a swipe or tap, Buy Now, Pay Later products are used via digital user accounts linked to websites, mobile apps, browser extensions, or integrations with merchant websites or mobile apps. Like conventional credit cards, Buy Now, Pay Later combines payment processing and credit services, while charging transaction fees to merchants.

Because Buy Now, Pay Later lenders will typically meet criteria under existing law and regulation as 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. In a market report, the CFPB uncovered 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 at the five firms surveyed. The failure to provide dispute protections can create chaos for consumers when they return their merchandise or encounter 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 that consumers initiate. Lenders must also pause payment requirements during the investigation and sometimes must issue credits.
• Refund returned products or cancelled services: When consumers return products or cancel services for a refund, Buy Now, Pay Later lenders must credit the refunds to consumers’ accounts.
• Provide billing statements: Consumers must receive periodic billing statements like the ones received for classic credit card accounts.

In 2021, the CFPB opened an inquiry into Buy Now, Pay Later with a focus on debt accumulation, regulatory arbitrage, and data harvesting. The agency published its results in 2022, and highlighted the rapid expansion of the industry and growing consumer risks. Last year, the CFPB published its findings on the financial profiles of Buy Now, Pay Later borrowers.

Read the interpretive rule, Truth in Lending (Regulation Z); Use of 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 offer further 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 submit complaints about financial products or services by visiting the CFPB’s website or by calling (855) 411-CFPB (2372).

Employees who believe their company has violated federal consumer financial protection laws are encouraged to send information about what they know to whistleblower@cfpb.gov.