New Rule Extends Protections for Buy Now, Pay Later Loans

Some credit card rules extended to short-term purchase financing

Customers who take advantage of short-term loans that offer "pay-in-four" installment flexibility will now have some new protections thanks to the Consumer Financial Protection Bureau (CFPB).

The CFPB issued a rule that extends certain credit card protections to Buy Now, Pay Later loans.

Buy Now, Pay Later loans are typically offered at the point of sale, whether online or in-store. The loans allow the customer to purchase the item by paying 25% of the full price and agreeing to pay the remaining balance in three additional installments, usually about two weeks apart. In many cases, if the loan payments are made on time, the customer pays no fee or interest.

However, due to the relative newness of these products, they have not yet been subject to some key consumer protections.

The announcement by the CFPB changes that and treats Buy Now, Pay Later like a credit card purchase in some instances.

The newly-extended protections include a right to dispute charges and demand a refund from the lender after returning a product purchased with a Buy Now, Pay Later loan.

“When consumers check out and choose Buy Now, Pay Later, they don’t know if they will get a refund if they return their product or whether the lender will help them if they didn’t get what was promised,” said CFPB Director Rohit Chopra. “Regardless of whether a shopper swipes a credit card or uses Buy Now, Pay Later, they are entitled to important consumer protections under longstanding laws and regulations already on the books.”

Consumer advocates cheered the move and said additional protections may be needed.

“Buy now pay later credit has become a ubiquitous substitute for credit cards, and consumers making purchases using these apps need the same protections,” said Lauren Saunders, associate director at the National Consumer Law Center (NCLC). “The CFPB is requiring buy now pay later providers to protect consumers who did not get what they paid for, just as with traditional credit cards.”

One advocate explained the benefits of extending additional credit card protections to Buy Now, Pay Later.

“Strong legal protections for credit cards give consumers the confidence to use them online and in all aspects of commerce. Dispute protections and statements for BNPL credit should help protect BNPL borrowers, though more protections are needed,” said Chi Chi Wu, senior staff attorney at the National Consumer Law Center. “There are also questions about how BNPL credit will show up on credit reports, and we’re finding that BNPL credit is not an adequate way for young consumers to build credit.”

Photo byDavid DvořáčekonUnsplash