May 22 (UPI) -- A new Consumer Financial Protection Bureau rule interpretation issued Wednesday gives buy-now, pay-later customers protections similar to credit card users under consumer law.
"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," agency Director Rohit Chopra said.
The rule interpretation issued Wednesday said buy-now, pay-later lenders that issue digital user accounts are "card issuers" because the digital user accounts they issue constitute "credit cards" under consumer protection regulations.
The new rule interpretation compels these lenders to comply with Truth In Lending Act requirements to investigate disputes, refund returned products or canceled services and provide billing statements.
Related
The bureau started an inquiry in 2021 into buy-now, pay-later lending practices. The agency issued a series of orders to five companies -- Affirm, Afterpay, Klarna, PayPal and Zip regarding their practices.
That inquiry found a close similarity to credit cards as consumers used the buy-now, pay-later providers as credit card substitutes. Both methods of payment use payment processing and credit services as transaction fees are charged to merchants.
The consumer bureau said Wednesday consumer complaints regarding refunds and transaction disputes related to buy-now, pay-later companies still exist. According to the agency, more than 13% of these type of transactions result in returns or disputes.
"Because buy-now, pay-later lenders will typically meet criteria under existing law and regulation as traditional credit card providers, they need to extend many of the same rights and protections as classic credit card providers. Importantly, these cover dispute and refund rights," the agency said in a statement.
The consumer protection agency said the failure to provide dispute protections can create chaos for consumers.
The interpretive rule was issued under the agency's authority to interpret regulatory rules under the Consumer Financial Protection Act of 2010.
