America’s Credit Unions: BNPL Rule Doesn’t Go Far Enough
Trade group says consumers should be required to show an ability to repay
The Consumer Financial Protection Bureau’s rule governing Buy Now, Pay Later purchases does not go far enough in protecting consumers, Carrie Hunt, America’s Credit Unions chief advocacy officer said Wednesday.
The CFPB released an interpretive rule on Wednesday that provides BNPL users with the same protections they would receive if they had used a credit card.
“When consumers check out and choose Buy Now, Pay Later, they don’t know if they will get a refund if they return their product or whether the lender will help them if they didn’t get what was promised,” CFPB Director Rohit Chopra said, as he announced the rule. “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.”
The CFPB said that the rule will require BNPL providers to:
Investigate disputes that consumers initiate. Lenders also must pause payment requirements during the investigation.
Credit consumers when products are returned, or services cancelled.
Provide consumers with periodic billing statements like the statements consumers receive for classic credit card accounts.
Hunt argues the rule does not subject BNPL providers to some important consumer protections, including that providers require users to demonstrate that they can repay the debt. “This shortcoming puts consumers at risk,” Hunt noted. “Credit unions fully embrace innovation in the market but are disappointed that the CFPB continues to put traditional lenders with established protections at a disadvantage.”
Hunt was critical that the CFPB rushed the rule by issuing it as an interpretive rule. An interpretive rule can be issued without an agency receiving public comments. The CFPB is accepting public comment, but the rule still goes into effect 60 days after it is published in The Federal Register.
Consumer advocates agreed with Hunt that providers should have to make sure BNPL consumers have the ability to pay for a BNPL purchase. “With many financially stressed consumers, including young people new to credit, using BNPL to buy groceries and make ends meet, we also need to make sure that consumers can afford to repay these loans and that late fees are not used as disguised interest,” said Lauren Saunders, associate director of the National Consumer Law Center.
Adam Rust, director of financial services at the Consumer Federation of America said a high percentage of BNPL consumers are financially distressed. “Compared to consumers who do not use BNPL, they are disproportionately more likely to have maxed their credit card limits, been delinquent on a debt, or used a high-cost payday lender,” he said. Rust added that the CFPB’s rule should require companies to verify that a consumer has an ability to repay a BNPL purchase and ensure that penalty fees are “reasonable and proportionate to cost.”