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The American Fintech Council (AFC) has urged the Consumer Financial Protection Bureau (CFPB) to give firms more time to comply with an upcoming rule on buy now, pay later (BNPL) products.
In May, as covered by Vixio, the CFPB finalised a new interpretive rule that will bring BNPL loans under the same regulation as credit cards.
The rule confirms that BNPL lenders meet the same criteria for being “credit card issuers” under the Truth in Lending Act (TILA) 1968.
Once the rule comes into effect, BNPL lenders will be required to offer customers similar protections as those offered by credit card companies, such as the right to refunds and the right to dispute potential charges.
The AFC, one of the largest fintech associations in the US, has welcomed the new interpretative rule, but has also warned that some firms may be unable to meet its compliance deadline.
Citing the variety of firms affected by the rule and the extent of the changes required, the association has asked for an extra six months to allow firms to comply.
The interpretive rule is currently scheduled to come into effect on July 30, 2024, but the AFC has asked that this deadline be pushed out until January 1, 2025, saying: “Given the complexity and variation in business models, lender practices and partnerships with merchants, it seems prudent to adopt an extended compliance period.”
A 'prudent' step, but guidance lacking
The AFC, whose members include BNPLs such as Affirm, has publicly advocated for “clear and consistent” regulation for the BNPL 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.”
However, 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 compliance with the rule.
Specifically, the AFC believes that the CFPB should have provided material such as a compliance guide for small businesses, a frequently asked questions (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.
This could result in private litigations and enforcement actions that firms will be ill equipped to defend themselves against.
Industry reception
None of the BNPLs that spoke with Vixio expected any compliance issues ahead of the current deadline.
Klarna said it does not foresee any issues. This affirms a similar statement it provided in May: “From our initial read, this announcement does not require any major changes to Klarna’s business,” it said.
Affirm, likewise, said in May that few changes would be needed to bring its operations into compliance with the rule, and no issues are expected ahead of the current deadline.
“We are encouraged that the CFPB is promoting consistent industry standards, many of which already reflect how Affirm operates, to provide greater choice and transparency for consumers,” it said.
However, Klarna remains opposed to the rule. In its May statement it argued that BNPL should not be regulated in the same way as credit cards, saying: “It is our hope that the CFPB will recognise the major differences between BNPL and credit cards, as they operate in fundamentally different ways.
“Klarna’s BNPL is short-term, no interest credit with no fees when paid on time. This model provides consumers with a transparent and predictable repayment structure, making it easier to manage their finances without the burden of accumulating interest.”
