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The buy now, pay later (BNPL) industry is responding “favourably and constructively” to the US Consumer Financial Protection Bureau (CFPB), its chair Rohit Chopra has said, as he confirmed that the often interventionist agency will not be enforcing against firms as they come into compliance with its new interpretive rule for BNPL.
This year, the CFPB has begun to take significant steps to enhance transparency and compliance within the country’s burgeoning industry.
However, the CFPB’s oversight of BNPL firms appears to be constructive, with Chopra confirming that, for now, firms should not expect enforcement action to be taken.
“The CFPB does not intend to seek penalties for violations of the rules addressed in the interpretive rule against any Buy Now, Pay Later lender while it is transitioning into compliance in a good faith and expeditious manner,” he wrote in a new blog post.
Further, Chopra said that the CFPB anticipates that other federal and state regulators will follow the same path.
“Companies understand that they shouldn’t have to compete with lenders that sidestep the law,” Chopra said, adding that the agency received feedback through the comment period and held meetings with BNPL providers to answer questions, including about which sections of Regulation Z specifically apply to different business models.
“Many Buy Now, Pay Later lenders are working diligently and in good faith to come into compliance,” he said.
Chopra has also confirmed that to support this transition, the regulator will respond to questions received in the comments, and to ensure all entities benefit from the clarifications provided in those meetings, it plans to issue a set of frequently asked questions (FAQs) next month to help lenders make transitions.
Chopra’s blog post comes a few weeks after the CFPB’s interpretive rule came into effect, on July 30.
This rule, released in May, confirmed that BNPL providers are legally equivalent to credit card providers.
Accordingly, BNPL 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 BNPL loan.
The interpretive rule describes how BNPL lenders meet the criteria for credit card providers, under the Truth in Lending Act.
For consumers, this means BNPL lenders serving the US market must:
- Investigate disputes that consumers initiate.
- Pause payment requirements during the investigation and sometimes must issue credits.
- When consumers return products or cancel services for a refund, BNPL lenders must credit the refunds to consumers’ accounts.
- Consumers must receive periodic billing statements like the ones received for classic credit card accounts.
The CFPB’s constructive tone comes a month after the American Fintech Council (AFC) urged the CFPB to give firms more time to comply with BNPL rules.
The AFC, whose members include BNPL firms such as Affirm, has publicly advocated for “clear and consistent” regulation for the sector.
Describing the new interpretive rule as “prudent”, the association said that BNPL products should be categorised as loans to ensure that consumers receive transparent disclosures of terms, fees and other relevant information.
“AFC believes that similarly situated products, such as credit cards and BNPL loans, should be regulated in a similar manner,” it said, “to ensure that consumers experience the same safeguards across these products.”
Although the association is broadly supportive of the CFPB’s new interpretive rule, it has also criticised the lack of guidance provided to firms on how to comply with the rule.
Specifically, the AFC believes that the CFPB should have provided material such as a compliance guide for small businesses, a FAQs page and industry webinars related to the rule.
“Without the aforementioned implementation guidance documents, industry participants are tasked with implementing the Interpretive Rule without perfect understanding of the Bureau’s views regarding best practices,” it said.
“In turn, this will increase the likely time it takes for BNPL lenders to meet the compliance requirements applied to them through the Interpretive Rule.”
The AFC also argued that, without guidance from the CFPB, courts and state regulators may interpret the rule differently to how the bureau intended, and that this could result in private litigations and enforcement actions that firms will be ill-equipped to defend themselves against.
In many ways, the AFC appears to have got its way with the CFPB, considering an imminent FAQs page and a lack of immediate enforcement.
In his blog post, Chopra has said that “all of this is part of CFPB’s work to ensure consumers can file disputes and have payments paused while those disputes are being investigated, receive refunds when they return products or cancel services, and benefit from helpful periodic billing statements”.
“We’re continuing to work on other ways to make sure that Buy Now, Pay Later doesn’t lead to people drowning in debt,” he said.
