BNPL Accounts = Credit Cards Says CFPB

The Consumer Financial Protection Bureau is wasting no time flexing its muscles now that the Supreme Court has confirmed its funding structure is constitutional. Today, the CFPB announced via press release that it was issuing an Interpretive Rule (Rule) to confirm that Buy Now Pay Later (BNPL) lenders are credit card providers. The Rule lists the requirements for BNPL lenders regarding dispute investigations, consumer refunds or cancellation of services, and billing statements. 

In prepared remarks published in tandem with the press release, Director Chopra stated that "Essentially, any mechanism, tool, or procedure that consumers can use from time to time to buy goods or services on credit gets the protections that consumers have come to know and expect with credit cards." Heavily citing its own research on BNPL products and the financial profiles of BNPL borrowers, the CFPB reasoned that because BNPL lenders typically meet the criteria of traditional credit card providers, they must extend many of the same rights and protections to consumers found in both the Truth in Lending Act (TILA) and Regulation Z. 

For purposes of the Rule, BNPL refers to "a consumer loan for a retail transaction that is repaid in four (or fewer) interest-free installments and does not otherwise impose a finance charge." (see page 4). The Rule details how and why BNPL lenders meet the definition of "card issuers" under TILA and subpart B of Regulation Z; however, it also says that lenders that issue digital user accounts to access BNPL credit are generally not subject to the credit card regulations appearing in subpart G of Regulation Z (e.g., penalty fee limits and ability-to-repay requirements).

For practical purposes, this means that BNPL lenders must:

• Investigate disputes: BNPL lenders must investigate disputes consumers initiate. Lenders must also pause payment requirements during the investigation and sometimes must issue credits. 
  
  
• Refund returned products or canceled services: When consumers return products or cancel services for a refund, Buy Now, Pay Later lenders must credit the refunds to consumers’ accounts. 
  
  
• Provide billing statements: Consumers must receive periodic billing statements like the ones consumers receive for classic credit card accounts.

The Rule is applicable 60 days after publication in the Federal Register. Though stakeholders may submit comments through August 1, 2024, as the CFPB noted on page 15-16 of the Rule since the CFPB has determined this is an interpretive rule, those comments are not required under the Administrative Procedure Act, and the CFPB need not take any further steps before the Rule becomes effective.

insideARM Perspective:

We've heard rumblings over the last several years that Director Chopra writes his own narratives and goals, and then tasks the CFPB with publishing data that proves these predetermined narratives. Recently, former CFPB Director Kraninger called out the CFPB for manipulating data. 

When the SCOTUS opinion regarding the CFPB funding was released, Joann Needleman, member at Clark Hill and Legal Advisory Board member, said the decision was like waking a bear from hibernation. In a follow-up article about the SCOTUS CFPB funding decision, I mentioned that much like George W. Bush after he won reelection in 2004, the SCOTUS ruling gave Director Chopra "political capital" and we should expect him to use it.  

Tying these two concepts together, well, here we go. We can expect to see initiatives the CFPB was holding pending the SCOTUS decision to come fast, and we shouldn't expect those initiatives to be subject to the Administrative Procedures Act or to take into account business practicalities or unintended consumer harms. In other words, we should all be hyper-aware of what the CFPB is doing right now, and leadership, operations, compliance, and IT teams should ensure they are able to communicate effectively and efficiently to ensure they can handle changes as they come. Further, as a practical matter, those working downstream of BNPL lenders should assess whether this affects their operations and be sure to consult with knowledgable legal counsel if there are any questions.