NEW YORK — Buy now, pay later Companies must offer consumers the same legal rights and protections as credit card issuers, the Consumer Financial Protection Bureau said in a new rule Wednesday.
This includes the right to claim refunds and dispute transactions. The agency began an investigation into the short-term lending industry two years ago and issued the rule in response to persistent consumer complaints, the agency said.
Here's what you need to know.
Buy now, pay later loans are typically marketed as zero or low interest, and allow consumers to spread payments for purchases over several weeks or months. They are marketed as a way to purchase expensive products and services over time, and the service is typically offered at the checkout for online shopping. It is often used for expensive items, such as furniture, clothing and airline tickets.
In a report, the CFPB found that more than 13% of buy now, pay later transactions involved a return or dispute, and in 2021, people disputed or returned $1.8 billion in transactions at the five companies surveyed.
“Regardless of whether a customer uses a credit card or Buy Now, Pay Later, he or she is entitled to important consumer protections under the long-standing laws and regulations that already exist,” CFPB Director Rohit Chopra said in a statement.
Two major buy now, pay later players – Affirm and Klarna – said they welcomed the arrangement.
“We are encouraged that the CFPB is advancing consistent industry standards, many of which already reflect how Affirm operates, to provide consumers with more choice and transparency,” a company spokesperson said in a statement. Affirm is currently offering “dispute and error resolution assistance,” the spokesperson added.
A Klarna spokesperson said the company also already investigates consumer disputes and covers related refunds.
The agency's announcement is an “important step forward” in regulating the buy now, pay later industry, Klarna said in a statement. It said it has been calling for regulatory oversight “for many years.”
While some in the industry have voluntarily chosen to operate under the standard now imposed by the CFPB's new rule, significant differences remain between making credit card loans and buying loans now and paying later. For example, buy now, pay later lenders don't all report their loans to the three major credit bureaus. Some analysts have said this could lead consumers to overextend themselves or take on more debt than they can handle or afford.
The CFPB said buy now, pay later lenders should offer many of the same rights and protections as traditional credit card providers. “Importantly, these cover disputes and refund rights,” the agency said.
The agency clarified that with the new “buy now, pay later” rule, lenders will:
– Investigate disputes. Lenders must also suspend payment obligations and sometimes grant loans during the investigation.
— Refund returned products or canceled services. Buy now, pay later lenders must credit refunds to consumers' accounts.
– Provide invoice overviews. Consumers should receive periodic statements of money owed, similar to the statements they receive for traditional credit card accounts.
“The failure to provide dispute protection can create chaos for consumers when they return their goods or encounter other billing issues,” the CFPB said.
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