CFPB Classifies Buy Now Pay Later Accounts as Credit Cards Under US Consumer Finance Law

The Consumer Financial Protection Bureau published an interpretive rule on 31 May 2024 classifying buy now, pay later accounts as credit cards under the Truth in Lending Act, subjecting BNPL lenders to the protections that apply to credit card providers. The rule, published at 89 Fed. Reg. 47,068, established that compliance with subpart B of Regulation Z would be required for BNPL accounts from 30 July 2024, giving the industry approximately two months from publication to implement the necessary changes.

The CFPB's action reflected the bureau's view that BNPL products, which allow consumers to spread the cost of purchases across a series of instalments typically without interest, function economically as credit cards in the specific sense defined by the TILA statutory framework. By issuing an interpretive rule rather than undertaking full notice-and-comment rulemaking, the bureau acted on existing statutory authority, characterising the rule as a clarification of how TILA already applies rather than the creation of entirely new regulatory obligations.

REGULATION Z CREDIT CARD RULES APPLIED TO BNPL

Under the interpretive rule, BNPL lenders must provide consumers with periodic billing statements setting out account activity, outstanding balances, and payment obligations in the manner required for credit cards. The rule further mandates that BNPL providers investigate billing disputes raised by consumers and credit refunds to accounts in accordance with Regulation Z's established credit card provisions.

The CFPB argued that the scale of BNPL adoption in the United States, with the product used by tens of millions of consumers for everyday purchases as well as larger discretionary spending, justified extending the same baseline protections applicable to credit cards. The bureau pointed to evidence of consumer confusion about the right to dispute incorrect charges and about how refunds from merchants would be handled as concrete grounds for the regulatory action.