Prepared Remarks of CFPB Director Rohit Chopra on the Buy Now, Pay Later Press Call

The Consumer Financial Protection Bureau is issuing an interpretive rule to make clear that the business practices of lenders marketing their loans as “Buy Now, Pay Later” will typically trigger the consumer protections in existing federal law and regulation, including those related to billing disputes and refunds.

Buy Now, Pay Later is a form of credit that allows a consumer to fully purchase a product, and then pay back the loan over four installments, with the first installment typically being a down payment on the purchase. In the past several years, loans marketed as Buy Now, Pay Later have boomed, especially during the pandemic.

The CFPB conducted an extensive study on this market that we published in 2022. The analysis revealed a tenfold increase in lending volumes from 2019 to 2021. In addition, Buy Now, Pay Later lending has expanded well beyond apparel and beauty, and now runs the gamut across merchant categories for purchases big and small.

The 2022 report detailed a wide range of issues, including overextension and excessive debt accumulation. Since publishing the report, we have undertaken a range of activities to further analyze the market, including a concerted effort to identify commonly employed business practices in this sector.

The CFPB’s interpretive rule explains that when borrowers use Buy Now, Play Later loans, they are entitled to some of the same rights and protections of the Truth in Lending Act that apply to traditional credit cards.

When Congress defined “credit card” under the Truth in Lending Act, it deliberately defined the term to include devices both known and unknown. While we typically think of a credit card as a piece of plastic with an embossed number, the term encompasses a wide range of devices, including those no longer commonly used. Similarly, the term has come to include digital forms of credit payment. In fact, many credit card companies issue virtual account numbers to be used for online shopping. 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.

When people use a credit card to purchase a product or service, they generally know what to expect in terms of rights and protections, which have been around in one form or another since the Truth in Lending Act was first enacted. For example, many consumers know that if you make a return or dispute a charge, you get a refund credited to your account. They know that if something goes wrong with the purchase, you can dispute it with the credit card company.

Based on our analysis of business practices in the Buy Now, Pay Later market, we found that these lenders often rely on user accounts that borrowers use to access Buy Now, Pay Later credit. The interpretive rule explains how this can meet the criteria for certain required consumer protections under longstanding law.

This means that consumers should receive disclosures that lay out fees, pricing structures, and rights and protections for things like billing disputes and refunds. For billing disputes, consumers have recourse when the merchant gives them the runaround. They can dispute a charge with the Buy Now, Pay Later lender who is then required to investigate the dispute, and in some cases, provide a credit to the consumer. Importantly, the consumer does not have to make payments on the Buy Now, Pay Later loan while the dispute is being investigated. For refund rights and protections, if the consumer returns an item, that return is reflected as a credit on the Buy Now, Pay Later loan.

The CFPB is issuing this interpretive rule to make clear how the agency would apply longstanding law and regulation to this popular form of credit. We are also accepting comments about the interpretive rule, which will help to determine if any further clarifications or revisions are needed. Comments will also help to inform future rules and guidance relevant to Buy Now, Pay Later.

Buy Now, Pay Later is now a major part of the consumer credit market, as these loans provide a meaningful alternative to other options for consumers. However, the CFPB wants to ensure that these new competitive offerings are not gaining an advantage by sidestepping the longstanding rights and responsibilities enshrined under the law.

Given the growth in outstanding consumer credit and the rise in new forms of credit, the CFPB will continue to carefully monitor these markets and take action to ensure that consumers are treated fairly.