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CFPB Announces New Protections for Buy Now, Pay Later | Personal Loans and Advice

Key Takeaways

  • New CFPB guidance gives consumers the right to dispute buy now, pay later charges.
  • Borrowers will also be entitled to receive a refund for returned products or canceled services purchased with a BNPL loan.
  • BNPL lenders will be required to send consumers monthly statements, similar to credit card issuers.

The Consumer Financial Protection Bureau issued an interpretive rule on May 22 that extends consumer protections to borrowers using buy now, pay later loans. This short-term financing allows borrowers to pay for products and services in online installments, such as four biweekly payments.

BNPL loans have become more popular over the past few years. Usage increased almost 1,000% from 2019 to 2022, according to a CFPB report. However, protections for this product haven’t been standardized until now. Based on the new rule, BNPL lenders will have to provide protections generally reserved for credit cards, such as the right to dispute charges and receive a refund for returned products or services.

BNPL Lenders Must Follow New Rules

The new interpretive rule states that BNPL lenders are essentially credit card providers, and as a result must provide some of the same consumer protections as traditional credit cards.

“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,” CFPB Director Rohit Chopra says in a news release. “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.”

Based on the new ruling, BNPL providers must:

  • Investigate disputes initiated by consumers. Plus, lenders must pause payments during the investigation and may be required to issue credits.
  • Issue consumers a refund for canceled services or returned products.
  • Send users periodic billing statements like the ones issued by traditional credit card companies.

The new ruling becomes effective in about two months.

The Advantages and Risks of BNPL Loans

BNPL loans may appeal to borrowers because some companies like Affirm offer no-interest installment options. Plus, many BNPL lenders don’t require a hard credit check.

However, there are risks to consider. For example, relying too much on BNPL loans can lead to a cycle of debt. Also, even though some companies don’t charge interest, some charge late fees that can drive up your borrowing costs if you miss payments.

Sarah Goldberg
Sarah Goldberg

Sarah is a seasoned financial market expert with a decade of experience. She's known for her analytical skills, attention to detail, and ability to communicate complex financial concepts. She holds a Bachelor's degree in Finance, is a licensed financial advisor, and enjoys reading and traveling in her free time.

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