Buy now, pay later (BNPL) services are now subject to regulations similar to those governing credit card providers. On Thursday, the Consumer Financial Protection Bureau (CFPB) issued an interpretive rule classifying BNPL services as credit card providers, thereby requiring them to investigate disputed purchases and adhere to other credit card rules.
BNPL services, such as Klarna, Afterpay, and Affirm, allow customers to buy products and pay for them in interest-free installments. Under the new guidance, these services must provide refunds for returned products or canceled services and send periodic billing statements to customers. This decision follows the CFPB’s inquiry into BNPL services, which found that BNPL is frequently used as a close alternative to traditional credit cards.
Some BNPL providers claim they already comply with the CFPB’s criteria. Klarna, for instance, stated in a blog post that it protects customers by covering refunds, investigating disputes, and providing purchase information. However, Klarna expressed disagreement with the CFPB’s classification of BNPL as credit cards. Klarna spokesperson John Craske told The Verge, “The CFPB’s announcement is a significant step forward in regulating BNPL, which Klarna has actively called for over many years. But it is baffling that the CFPB has overlooked the fundamental differences between interest-free BNPL and credit cards, whose whole business model is based on trapping customers into a cycle of paying sky-high interest rates month after month.”
Similarly, Affirm CEO Max Levchin stated in a thread on X that the company is “pleased that the Bureau is promoting consistent industry standards (many of which already reflect how Affirm operates).”
BNPL services have grown in popularity as credit card interest rates continue to rise, prompting even Apple to create its own BNPL service. However, there are concerns that BNPL could lead some people to overspend and accumulate debt. A CNBC report highlights that it is difficult to determine the extent of this issue since BNPL services are not required to report loans to credit reporting agencies.
