Consumers can dispute charges, demand refunds, get statements
WASHINGTON – Advocates applauded today’s interpretive rule by the Consumer Financial Protection Bureau (CFPB) that makes clear that buy now pay later (BNPL) products are a form of credit card and providers must comply with some of the protections for traditional credit cards under federal law. These include the right to dispute charges (“chargeback rights)” and obtain refunds, as well as to receive regular statements.
“Buy now pay later credit has become a ubiquitous substitute for credit cards, and consumers making purchases using these apps need the same protections,” said Lauren Saunders, associate director at the National Consumer Law Center. “The CFPB is requiring buy now pay later providers to protect consumers who did not get what they paid for, just as with traditional credit cards.”
In earlier comments, 77 consumer groups alerted the CFPB to problems with BNPL products, including:
- Limited access to refund or redress if there is a problem with the item purchased, with people sometimes facing debt on the loan even if the item was returned;
- Lack of statements to keep track of multiple BNPL credit extensions and payments;
- Lack of underwriting for ability to repay; and
- A variety of junk fees that are not clearly disclosed, including late fees, missed payment fees, account reactivation fees, returned payment fees, and rescheduling fees.
The groups also flagged potential issues with credit reporting and debt collection. The new rule addresses some of these issues but not all of them.
The CFPB made clear that BNPL is credit covered by the federal Truth in Lending Act (TILA) and is a form of credit card that must comply with some, though not all, of TILA’s credit card rules. Under the guidance, BNPL providers must:
- Follow the protections for credit card disputes over unauthorized use, billing errors, and disputes with the merchant;
- Provide refunds when consumers return a product or if the dispute is valid;
- Provide disclosures about fees and other costs; and
- Send regular statements to help consumers keep track of transactions and payments.
However, the rule does not require BNPL providers to comply with all of the protections that apply to traditional credit cards, such as the requirement to assess ability to repay and to limit late fees to reasonable and proportional amounts.
“Strong legal protections for credit cards give consumers the confidence to use them online and in all aspects of commerce. Dispute protections and statements for BNPL credit should help protect BNPL borrowers, though more protections are needed,” said Chi Chi Wu, senior staff attorney at the National Consumer Law Center. “There are also questions about how BNPL credit will show up on credit reports, and we’re finding that BNPL credit is not an adequate way for young consumers to build credit.”
“With many financially stressed consumers, including young people new to credit, using BNPL to buy groceries and make ends meet, we also need to make sure that consumers can afford to repay these loans and that late fees are not used as disguised interest. The next step should be to extend the protections of the 2009 Credit CARD Act to BNPL products, which would require providers to assess a borrower’s ability to repay the loan and to charge only reasonable late fees,” Saunders added.
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