Buy now, pay later services have to act more like credit card providers now
BNPL Services: New Credit Card Rules?
Buy now, pay later (BNPL) services are now subject to similar regulations as credit card providers, following a new rule by the Consumer Financial Protection Bureau (CFPB). This rule mandates that BNPL companies like Klarna, Afterpay, and Affirm handle disputed transactions and offer customer protections such as refunds for returns and periodic billing statements. This change aims to address concerns that BNPL can lead to overspending and debt accumulation, similar to traditional credit cards.
What are the specific responsibilities that BNPL services must now fulfill under the CFPB's classification of them as credit card providers?
Under the Consumer Financial Protection Bureau's (CFPB) classification of Buy Now, Pay Later (BNPL) services as credit card providers, BNPL services must now fulfill several responsibilities. These include:
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Investigating disputed purchases: BNPL services are required to investigate any disputes related to purchases made using their platforms. This ensures that consumers have a way to address any issues that may arise with their purchases.
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Providing refunds for returned products or canceled services: BNPL services must now provide refunds to customers who return products or cancel services. This ensures that customers are not left out of pocket for items they no longer possess or services they did not receive.
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Sending periodic billing statements to customers: BNPL services are now required to send regular billing statements to their customers. This provides transparency and helps customers keep track of their payments and outstanding balances.
It is important to note that some BNPL services, such as Klarna, claim they were already meeting these criteria before the CFPB's classification. However, the CFPB's decision ensures that all BNPL services will now be held to the same standards as credit card providers in these areas.
How do BNPL services like Klarna, Afterpay, and Affirm need to adjust their operations following the CFPB's new rule?
Following the Consumer Financial Protection Bureau's (CFPB) new interpretive rule, Buy Now, Pay Later (BNPL) services such as Klarna, Afterpay, and Affirm are required to adhere to several regulations similar to those imposed on credit card providers456. This includes the obligation to investigate disputes over purchases, provide refunds for returned products or canceled services, and send periodic billing statements to customers4. These requirements aim to bring more transparency and consumer protection into the BNPL sector, which has grown in popularity as an alternative to traditional credit card use.
Klarna has responded by stating that it already covers refunds, investigates customer disputes, and provides purchase information, indicating some level of compliance with the new guidelines. However, Klarna also expressed concerns about the CFPB classifying BNPL services as equivalent to credit cards, highlighting the absence of interest charges in BNPL as a fundamental difference from credit cards2. Similarly, Affirm's CEO, Max Levchin, noted that many of the practices now required by the CFPB are already part of how Affirm operates, suggesting that the adjustments for Affirm may be minimal but underscoring the company's support for consistent industry standards.
Overall, BNPL services will need to ensure they fully comply with these new requirements, potentially adjusting their operational processes to meet the CFPB's standards, thereby enhancing consumer protections while maintaining the distinct characteristics of BNPL products.