As CFPB Targets BNPL Firms, Some Consumer ‘Protections’ Are Already in Place

The Consumer Financial Protection Bureau — with the wind of the recent Supreme Court ruling at the agency’s back — has returned to rule-making.

This time around, buy now, pay later (BNPL) firms are in the Bureau’s sights — but could it be a case of duplicative efforts?

The CFPB’s latest interpretive rule was handed down on Wednesday (May 22). As reported, the agency has determined that BNPL firms are in fact credit card providers. And as such, they must deliver some of the same features and rights that card companies do.

Those features include the right to dispute charges and demand a refund from the lender.

Shares of Affirm were down 2.7% in intraday trading on Wednesday; shares of Sezzle slid nearly 7%.

‘Known and Unknown’ Payment Devices

As CFPB Director Rohit Chopra said in a news release, “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.”

And in terms of the processes themselves: The CFPB and Rohit have stated that a consumer can dispute a charge with a BNPL 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 that 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 BNPL loan.

The federal-level push comes, as PYMNTS Intelligence has found, as BNPL appears to be picking up the most steam among younger consumers. Some 49% of Gen Z shoppers and 52% of millennials have used BNPL at least once in the last year, with 23% of shoppers in both segments increasing their BNPL use during that time.

What’s in the Filings

We note that the BNPL providers already have processes set up when and as disputes might happen. In its most recent annual filing with the Securities and Exchange Commission (SEC), Affirm detailed that “the accrual of interest on a loan is suspended if a formal dispute with the consumer involving either Affirm or the merchant of record is opened … upon the resolution of a dispute with the consumer, the accrual of interest is resumed.” At the end of the latest fiscal year, the balance of loans in this non-accrual status stood at $1.8 million.

For its part, Sezzle, in its filings, notes that “we are also required to maintain minimum balances in deposit accounts to fund merchants using our virtual card solution and to cover consumer card chargebacks. These accounts are classified as current restricted cash on the consolidated balance sheets.”

Protections Already in Place

In a statement released by Klarna on Wednesday, the BNPL provider said that “from our initial read, this announcement does not require any major changes to Klarna’s business and we consider today’s announcement to be a significant step forward in getting BNPL regulation in place in the US.”

But, Klarna added, “it is baffling that the CFPB fails to acknowledge the fundamental differences between BNPL and credit cards in their guidance and this announcement does nothing to address the $1.15 trillion in credit card debt … Klarna is already working to a high standard in investigating disputes, pausing payments, providing consumers with comprehensive billing statements.”

As part of that policy, per Klarna’s site, Klarna’s Buyers Protection “promises to pause your payment for 21 days if you report a return. These 21 days are to ensure there is enough time for the store to process your return.” And elsewhere, as Sezzle details in discussing refund for a Pay-in-4 or Pay-in-2 order: ”Anything refunded to you will always cancel outstanding payments first.”

In a statement provided to PYMNTS, an Affirm spokesperson said that “returns and refunds are subject to merchants’ policies. If a merchant cannot help or is unresponsive, consumers can reach out to Affirm and … Affirm can intervene on behalf of consumers by escalating any issues to the merchant and opening up a dispute, during which time no payments are due while the situation is reviewed.” The company’s site details that an Affirm loan qualifies for a dispute if, among other things, “the loan is confirmed (not in a merchant processing status) … the purchase was made in the past 60 days” and “the store is not following their policy to address [the consumer’s] issue.”

A statement posted by Affirm Wednesday read, in part, that “We are encouraged that the CFPB is promoting consistent industry standards, many of which already reflect how Affirm operates, to provide greater choice and transparency for consumers … we are committed to continuing to engage with the CFPB as we constantly improve the experience and value we deliver to consumers, as well as our practices.”