“Buy now, pay later” firms must meet credit card standards

The companies that offer plans “buy now and pay later” must provide consumers with the same legal rights and protections as credit lenders. Credit cardsrecently indicated the Consumer Financial Protection Bureau of USA in a new regulation.

That includes the right to demand a refund and dispute transactions. Two years ago, the agency launched an investigation of the short-term lending industry and issued the rule in response to continued consumer complaints, he said.

What is behind the new regulation?

Buy now, pay later loans are often promoted as being interest-free or low-interest, and allow consumers to spread payments on purchases over several weeks or months. The consumer is told that with them they will be able to buy expensive products and services and pay for them over time, and the service is usually offered at the time of paying for online purchases. They are often used for big-ticket items, such as furniture, clothing, and airline tickets.

In a report, the CFPB (Consumer Financial Protection Bureau) found that more than 13% of the transactions of “buy now and pay later” They involved a return or dispute and, in 2021, various clients disputed or returned US$1.8 billion in transactions to the five companies examined.

“Regardless of whether a shopper swipes a credit card or uses ‘buy now, pay later,’ they are entitled to important consumer protections under long-standing laws and regulations already on the books,” Rohit Chopra, director of the CFPB, said in a statement.

How does the sector respond to this regulation?

Two major players in buy now, pay later plans — Affirm and Klarna — say they welcomed the regulation.

“We are encouraged that the CFPB is promoting uniform industry standards, many of which already reflect how Affirm operates, to provide greater choice and transparency for consumers.“said a company spokesperson in a statement. Affirm currently offers “assistance for resolving disputes and errors”added the spokesperson.

A Klarna spokesperson said the company also already investigates consumer complaints and covers refunds related to them.

The agency’s announcement is a “important step forward” in the regulation of the sector “buy now and pay later”, Klarna said in a statement. She indicated that “for many years” she had asked for regulatory oversight.

While some in the industry have chosen to voluntarily operate at the standard now required by new CFPB regulation, there are still significant differences between credit card loans and buy now, pay later loans. For example, not all lenders “buy now and pay later” They report their loans to the three major credit reporting agencies. Some analysts have said this can lead consumers to overextend themselves or take on more debt than they can handle or repay.

What rights do consumers have?

• The CFPB said lenders “buy now and pay later” They must provide many of the same rights and protections as classic credit card providers. “Importantly, this covers dispute and refund rights,” the agency said.
• The agency clarified that, with its new regulation, credit lenders “buy now and pay later” they must:
• Investigate disputes. Lenders must also suspend payment requirements during the investigation and sometimes issue credit.
• Refund returned products or canceled services. The lenders of “buy now and pay later” They must credit refunds to consumers’ accounts.
• Provide account statements. Consumers should receive periodic statements of money owed similar to those they receive for classic credit card accounts.
• “Failing to provide protection in case of disputes can create chaos for consumers when they return their merchandise or encounter other billing difficulties”noted the CFPB.

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