CFPB Issues New Rules for BNPL, Requiring Some Credit Card Protections

What the New Rule Means for BNPL Providers

The new rule means that BNPL providers have to comply with some of the same regulations as conventional card issuers:

• BNPL providers must comply with an existing law: An interpretive rule isn’t a new law or regulation, and it doesn’t impose brand-new requirements on organizations. Instead, the CFPB is saying that it believes parts of an existing law—the Truth in Lending Act (TILA), which Regulation Z implements—should apply to BNPL providers because what they offer falls under the existing definition of a credit card.
• Defines some BNPL plans as credit cards: The legal definition of credit card isn’t specific to a small piece of plastic or metal. Instead, “Credit card means any card, plate or other single credit device that may be used from time to time to obtain credit,” the TILA says. The CFPB says that the digital account you may receive for your BNPL plan counts as a “single credit device,” and is therefore a credit card under the law.
• Doesn’t apply to every BNPL offering: The interpretative rule only applies to BNPL plans that allow you to repay an interest-free and finance-charge-free installment loan in four or fewer payments—commonly called a “pay-in-four” plan. Some BNPL providers also offer long-term loans that charge interest or fees.

The interpretive rule isn’t saying the pay-in-four BNPLs are identical to traditional credit cards in every way. For example, they’re not considered open-end credit accounts and certain parts of the law don’t apply, such as the restrictions on credit card late fees.

But the rule requires BNPL providers to comply with existing rules related to disputed transactions, refunds, canceled services and billing statements.

When Did the New Rule Go Into Effect?

The interpretive rule went into effect on July 30, 2024. The CFPB was accepting comments on the rule until August 1, 2024, and it received 40 comments—a mix of support and opposition.

The CFPB could clarify or make revisions to the rule, and it may explore other ways to regulate BNPL providers. Some states have also introduced bills that could add new requirements to BNPL providers.

What the New Rule Means for Consumers

The new rule means BNPL providers must comply with three requirements that could impact consumers:

• Payments will pause during disputes. If you dispute a transaction, the BNPL provider must investigate the transaction and pause your payments. It also might have to issue you a credit while it investigates.
• You can get refunds for returned or canceled purchases. The BNPL provider must give you a refund if you return a product or cancel a service for a refund.
• You’ll receive billing statements. The BNPL provider has to send you periodic billing statements, similar to the monthly credit card statements you receive from conventional credit cards.

Some BNPL providers already offered these types of protections and statements to consumers, and you might not notice a big difference if you use BNPLs. However, the interpretive rule could still be important because it means there’s a legal requirement for BNPL providers to offer these consumer protections.

Using and Managing BNPLs

BNPL plans can be a helpful option if you’re financing purchases, particularly if you have trouble qualifying for credit elsewhere and you’re certain you can pay off the loan on time. The pay-in-four plans often don’t have interest charges or fees. However, late payments can still lead to fees, and unpaid accounts might be sent to collections and hurt your credit.

Some consumers get into trouble when they take out multiple BNPL plans and borrow more than they can afford to pay off. They might overdraw their bank account when attempting to make payments, or have to pick and choose which bills to pay on time. Try to monitor your income and expenses, via BNPLs and otherwise, to avoid overspending.

Also, compare BNPLs to other forms of credit when financing purchases. In some cases, a conventional rewards credit card might be a better fit for smaller purchases if you can pay off the credit card bill in full. An unsecured personal loan also might be a better fit for large purchases that you pay off over time, as even BNPL providers tend to charge interest on these types of loans.

Your eligibility and terms on conventional credit cards, personal loans and longer-term loans from BNPL providers can depend on your credit history and scores. You can get your FICO Score and credit report for free from Experian, and get matched with credit card and loan offers based on your unique credit profile.