Feds beef up consumer protections for ‘buy now, pay later' purchases

The Consumer Financial Protection Bureau says the loans should be treated like credit cards

NBC Universal, Inc.

You’ve probably noticed a new way to pay when shopping online over the past few years. It's known as “buy now, pay later,” or BNPL. The option is tempting if you’re trying to avoid racking up credit card debt, but it could also land you in trouble if you’re not careful.

Domenica Quintana said she uses BNPL when she wants to update what’s in her closet.

“It helps when you really want something and you don’t have all that money upfront,” Quintana told NBC 7.

Most BNPL lenders like Affirm, Klarna and Afterpay divide the total purchase into four automatic payments over six weeks, interest-free. There are longer-term loans too, but those could cost more than you think.

“Many of those longer-term plans do charge interest rates, sometimes as much or more than a credit card,” Ted Rossman with Bankrate said, “so that’s a bit of fine print that people need to be aware of.” 

Rossman warned that, just like a credit card, if you are late with your payments, it could lower your credit score.

For the past few years, the Consumer Financial Protection Bureau (CFPB) has been looking into the impact the option has on buyers. Its conclusion? BNPL should be treated the same as credit card transactions and offer the same protections.

For example:

  • Lenders must investigate disputes initiated by customers, must pause payment requirements during an investigation and, at times, even issue a credit
  • Lenders must credit refunds to buyers’ accounts when returns or cancellations of services happen
  • Lenders must provide billing statements like credit cards do

When the CFPB made the announcement, Klarna said in a statement: "Trying to regulate BNPL like a credit card is like comparing apples with oranges. So today’s announcement is confusing."

Affirm said: "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."

Afterpay did not release a statement and did not respond to NBC 7's emails.

Meanwhile, Quintana said she’s aware of and happy about the changes to the rules.

“I mean, it worked very well for me at that time," Quintana said. "I try not to do something like that all the time because I don’t want to be haunted by payments later.” 

The CFPB is encouraging the public to submit opinions on the new rule to help inform where they need to provide further clarity. You can do that before Aug. 1 at this link.

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