The Consumer Financial Protection Bureau (CFPB) has introduced an interpretive rule that brings certain "buy now, pay later" (BNPL) providers under the regulatory scope of the Truth in Lending Act. The rule applies specifically to BNPL products considered "closed-end loans payable in four or fewer installments without a finance charge." However, it excludes BNPL providers that offer their services through direct partnerships with merchants. Instead, the rule focuses on those offering digital user accounts, which allow consumers to access credit through the BNPL provider’s website or mobile app. These digital accounts function similarly to traditional credit cards and are now categorized as "credit cards" under Regulation Z, making the providers "creditors." This means they must comply with regulations related to credit cost disclosures and billing dispute resolutions.
The rule does not mandate public comments under the Administrative Procedures Act, but the CFPB is open to receiving feedback until August 1. The increasing use of BNPL products in the U.S. consumer market, as evidenced by a rise from 6.6% in 2021 to 9.3% in 2023, underscores the importance of these regulations. Retailers are advised to review their agreements with BNPL providers to ensure compliance and mitigate any potential legal liabilities. The CFPB might revise the rule based on public comments, so stakeholders are encouraged to participate in the feedback process.
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