Introduction

The Consumer Financial Protection Bureau (CFPB) issued an interpretive rule on May 22, 2024, that classifies buy now, pay later (BNPL) lenders as credit card issuers. This new rule is significant as it mandates BNPL providers to offer consumers the same protections and disclosures available with conventional credit cards. If you are using or considering a BNPL plan, here’s what you need to know.

What the New Rule Means for BNPL Providers

The new rule requires BNPL providers to adhere to some of the same regulations as traditional credit card issuers:

• Compliance with Existing Law: The interpretive rule is not a new law but an application of the existing Truth in Lending Act (TILA), implemented by Regulation Z, to BNPL providers.
• Definition of Credit Card: The CFPB considers the digital account used for BNPL plans as a “single credit device,” thus classifying it as a credit card under TILA.
• Scope of Application: The rule applies to BNPL plans that allow interest-free and finance-charge-free installment loans in four or fewer payments, commonly known as “pay-in-4” plans.
• Consumer Protections: BNPL providers must comply with rules related to disputed transactions, refunds, canceled services, and billing statements.

When Did the New Rule Go Into Effect?

The interpretive rule went into effect on July 30, 2024. The CFPB accepted comments on the rule until August 1, 2024, receiving a mix of support and opposition. The CFPB may clarify or revise the rule and explore other regulatory measures for BNPL providers. Some states have also introduced bills that could impose additional requirements on BNPL providers.

What the New Rule Means for Consumers

The new rule imposes three key requirements on BNPL providers that could impact consumers:

• Paused Payments During Disputes: If you dispute a transaction, the BNPL provider must investigate and pause your payments, potentially issuing a credit during the investigation.
• Refunds for Returned or Canceled Purchases: The BNPL provider must issue a refund if you return a product or cancel a service.
• Billing Statements: BNPL providers must send periodic billing statements, similar to those from conventional credit cards.

While some BNPL providers already offer these protections, the interpretive rule ensures a legal requirement for these consumer protections.

Using and Managing BNPLs

BNPL plans can be a useful option for financing purchases, especially if you have difficulty qualifying for credit elsewhere and can pay off the loan on time. Pay-in-4 plans often do not have interest charges or fees, but late payments can lead to fees, and unpaid accounts may be sent to collections, affecting your credit.

It’s essential to monitor your income and expenses to avoid overspending, particularly if you have multiple BNPL plans. Compare BNPLs to other forms of credit when financing purchases. In some cases, a conventional rewards credit card may be a better fit for smaller purchases if you can pay off the credit card bill in full. For larger purchases, an unsecured personal loan might be more suitable, as BNPL providers often charge interest on long-term loans.

Your eligibility and terms for conventional credit cards, personal loans, and longer-term BNPL loans depend on your credit history and scores. You can obtain your FICO® Score and credit report for free from Experian and get matched with credit card and loan offers based on your unique credit profile.

Contact O1ne Mortgage for Your Mortgage Needs

At O1ne Mortgage, we understand the complexities of managing your finances and are here to help you navigate your mortgage needs. Whether you’re looking to buy a new home, refinance your existing mortgage, or explore other financing options, our team of experts is ready to assist you.

Call us today at 213-732-3074 to speak with one of our experienced loan officers. Let O1ne Mortgage be your trusted partner in achieving your financial goals.