The end of the month is speeding toward the buy now, pay later (BNPL) industry — and with it, new rules and regulations regarding consumer disputes and new operational burdens in the drive toward compliance.
The Consumer Financial Protection Bureau’s (CFPB) rule classifying BNPL as credit card providers takes effect July 30, meaning these firms must provide legal protections and rights delivered by conventional credit cards.
As for the rule-making, which through its interpretive designation is applying existing rules to what is, in effect, a new (or at least nascent) industry, the newly governed are asking for more clarity, as well as a delay in the implementation of the rule itself.
A letter this week from American FinTech Council (which, among other enterprises, represents BNPL providers) to Rohit Chopra, director of the CFPB, asks that the rule become effective next year, not this month.
In the letter, the Council argued that “given the complexity and variation in business models, lender practices, and partnerships with merchants, as well as differences in the levels of preexisting compliance with the provisions enumerated in the Interpretive Rule by BNPL lenders, it seems prudent to adopt an extended compliance period. Therefore, AFC recommends extending the effective date of the Interpretive Rule from its current date of July 30, 2024, to January 1, 2025.”
There’s been no real implementation guidance, per the letter, and no small entity guidance. In the meantime, BNPL lenders may have to “consider changes to their disclosures, periodic statements, and billing rights to meet the compliance requirements established” in Regulation Z, which is part of the Truth in Lending Act that governs lending, disclosure and communications with consumers.
“An extension is necessary for BNPL lenders to test and responsibly implement necessary changes before civil liability attaches to these additional requirement,” the letter noted. In other words, as BNPL providers wind up changing their practices, they may be on the hook for fines and other consequences should it be deemed later that they’d run afoul of regulations.
The trade group added in its missive that it has “advocated for a unified regulatory environment for product and service offerings that are provided to consumers for a similar purpose or in a similar manner” and that it has helped push for policy standards.
The possible regulatory burden would increase at a time when, as PYMNTS Intelligence has found, 79% of overall consumers have said they are “very” or “extremely” satisfied with BNPL experiences.
BNPL firms, for their part, have detailed disputes and return policies on web pages and in regulatory filings with the likes of the Securities and Exchange Commission. Affirm noted in its annual report that “the accrual of interest on a loan is suspended if a formal dispute with the consumer involving either Affirm or the merchant of record is opened … upon the resolution of a dispute with the consumer, the accrual of interest is resumed.”
Klarna’s site illuminates that through its Buyers Protection feature, the company “promises to pause your payment for 21 days if you report a return. These 21 days are to ensure there is enough time for the store to process your return.”
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