Thanks to a new proposed rule by the Consumer Financial Protection Bureau (CFPB), buy now, pay later (BNPL) companies, such as Afterpay, Klarna, and Affirm, face a changing landscape.
Under the rule, when you split your purchases into installments, BNPL must play by the same rules as credit cards, which means greater protection for you and, hopefully, a lot less to complain about.
“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," Affirm CEO Max Levchin said in a statement. "Affirm’s success is aligned with responsibly extending access to credit as we do not charge late or hidden fees."
The backstory on this move started a couple of years ago when those tempting buy now, pay later options started popping up in the checkout aisles at stores and online. The pitch was that you could break down your purchase into smaller chunks, often spread over four payments.
What’s not to like, right? Especially when you’ve come upon this drool-worthy piece of tech or apparel that you’ve just got to have. However many consumers overextended themselves with BNPL and ran up more debt than they could manage. That’s when the CFPB’s inbox started getting loaded down with complaints.
A lot of those complaints centered around confusion with BNPL plans – confusion when someone wanted to return something you bought with BNPL, or if there was a problem with their order. Maybe the item arrived damaged or the store went out of business before you finished your payments.
The new deal
Now, with the CFPB’s new rule, when you have an issue with a BNPL purchase, you will have the exact same rights that you do with a credit card. Protections such as:
Hassle-free returns and refunds: Struggling to return that ill-fitting jacket? No worries. If you return an item purchased with BNPL, the lender now has to credit your account for the refund, just like a credit card company would.
Disputing charges: Did you get charged for something you never received? Problem solved! Now, the new rule allows you to dispute the charge with the BNPL lender, sort of like how you would with a credit card purchase. This hopefully will help resolve billing errors or unanticipated fees.
Clear billing statements: The CFPB is requiring BNPL companies to send regular billing statements, just like the credit card companies do. This will give you a clear picture of your outstanding balance and upcoming payments.
What do the BNPL companies think about this?
Max Levchin, the Founder and CEO of Affirm, posted on X that he, for one, thinks the CFPB's move a smart one.
“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. Affirm’s success is aligned with responsibly extending access to credit as we do not charge late or hidden fees," he said.
"We underwrite every transaction, provide consistent and transparent disclosures, and offer dispute and error resolution assistance. We urge other companies that offer buy now, pay later products to live up to the industry’s promise to provide consumers with a more flexible and transparent alternative to other payment options. We are committed to continuing to engage with the CFPB as we constantly improve the experience and value we deliver to consumers, as well as our practices.”
If you agree or disagree with Levchin's thoughts or the CFPB's move, you should let the agency know.
The CFPB encourages consumers to submit comments on the new interpretive rule. Given the rapid changes in this market, public comments will give the CFPB more insight so it can offer further clarity, including through rules and guidance, related to the Buy Now, Pay Later market.
Comments will be accepted until August 1, 2024.