The regulatory future of the Consumer Financial Protection Bureau (CFPB) remains in flux, but recent developments suggest a retreat from its more assertive stance on Buy Now, Pay Later (BNPL) oversight.
CFPB rolls back BNPL oversight
Following sustained industry pushback and ongoing legal challenges, the CFPB has signalled its intention to rescind an interpretive rule that would have reclassified BNPL providers offering “pay-in-four” instalments as credit card issuers — subject to the same regulatory obligations under Regulation Z of the Truth in Lending Act.
The rule, originally introduced in 2023, would have mandated that BNPL firms extend the same consumer protections as traditional credit card issuers.
These included the right to dispute transactions, demand refunds for returned goods or services, and the requirement to pause payments during such disputes.
The proposal, which reflected the CFPB’s concern over the rapid growth and uneven regulatory treatment of BNPL products, was welcomed by some consumer advocates.
However, it provoked strong opposition from the BNPL sector and associated fintechs, who argued the operational burden was disproportionate and poorly calibrated to the structure of BNPL lending.
Legal Challenge Forces CFPB’s Hand
In a court filing submitted on 26 March 2024 in Washington DC, the CFPB requested a stay in ongoing litigation brought by the Financial Technology Association (FTA).
The Bureau confirmed it is planning to revoke the interpretive rule, and committed to submitting status updates to the court on a monthly basis beginning in June.
The revocation, once formalised, would render the legal dispute effectively moot.
The FTA — whose members include major BNPL and fintech players such as Klarna and Block — had argued that the rule was “arbitrary and capricious,” noting that it failed to consider fundamental differences between BNPL loans and traditional revolving credit.
Specifically, the association contended that Regulation Z’s periodic statement requirements were “infeasible” for BNPL products, which typically operate on fixed, short-term repayment cycles.
Complying with the rule, they warned, would necessitate significant investment in new infrastructure and workflows, potentially disrupting product offerings and confusing consumers.
A Reprieve for the BNPL Sector — For Now
The CFPB’s decision to pause and revoke the rule is widely seen as a temporary reprieve for the BNPL industry, which has faced increasing scrutiny from regulators in both the US and abroad.
The Bureau’s earlier research had revealed that 13% of BNPL transactions involve returns or disputes, and flagged concerns over inconsistent refund practices, debt accumulation, and data usage.
Despite this week’s U-turn, the CFPB maintains that BNPL products meet the legal definition of credit under existing frameworks and continues to collect public feedback on its interpretive rule until 1 August 2024.
The possibility of future rulemaking or refined guidance remains firmly on the table.
For now, however, BNPL providers are unlikely to face immediate regulatory alignment with credit card standards.
The outcome reflects a broader trend: as regulatory frameworks race to keep pace with fintech innovation, agencies must navigate a complex balancing act between consumer protection, operational feasibility, and market stability.
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