New Rule Ensures Consumer Protections for Buy Now, Pay Later Loans

Advocates say new rule protects consumers from abuse

Consumer advocates are cheering a new rule from a federal regulator designed to protect consumers using short-term loans to finance purchases.

According to the National Consumer Law Center (NCLC) and Consumer Reports, a rule issued by the Consumer Financial Protection Bureau (CFPB) to extend credit card protections to Buy Now, Pay Later loan products will protect consumers from potential harm.

The two consumer protection groups joined a comment letter in support of the rule and issued a statement explaining why it will benefit users of Buy Now, Pay Later products.

“The CFPB’s new rule will help ensure consumers who use BNPL credit can dispute charges and get their money back promptly just as they are guaranteed by law when they use a credit card,” said Jennifer Chien, senior policy counsel at Consumer Reports. “Unfortunately, BNPL credit still lacks a number of critical consumer protections that put borrowers at risk. The CFPB should strengthen the rules governing the largely unregulated BNPL market and ensure consumers get the same protections they are entitled to with a credit card.”

BNPL credit allows consumers to split the cost of purchases into four or more payments. The most common BNPL credit involves “pay-in-four” purchases, where consumers pay 25 percent of the cost of the item at the point of sale, and the remaining balance in three payments of 25 percent over the next six weeks. Once they establish a BNPL account, consumers can use that account repeatedly to make additional purchases, just as they can with a credit card.

Unlike traditional layaway credit, a consumer leaves the store (or online retailer) with the item after paying only 25 percent of the total cost. Typically, if a consumer makes all payments on time as agreed, there is no interest or fee for using the Buy Now, Pay Later credit.

Advocates say the products may offer some benefits, but that key protections such as those proposed by the CFPB are necessary.

"Buy Now, Pay Later accounts are a form of credit card because they can be used for purchases at the point-of-sale, and Congress intended credit card protections to apply broadly to protect consumers,” said Lauren Saunders, associate director of the National Consumer Law Center. “In addition to responding to consumer disputes, BNPL companies should provide clear, uniform fee disclosures, extend credit that consumers can afford to repay, and charge only reasonable late fees, just as protections required for traditional credit cards.”

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