Buy Now, Dispute Later? BNPL To Get Same Consumer Protections As Credit Cards

Update—May 22, 2024. This article has been updated to include the response from BNPL providers.

The next time you buy something and pay for it in four installments, you may have the right to dispute the charges, just like you would with a credit card. 

After years of scrutinizing the business model, the Consumer Financial Protection Bureau (CFPB) is imposing new regulations on buy-now-pay-later plans. The government’s consumer watchdog is granting customers the protections they have when they use credit cards, including the right to dispute charges or demand a refund after returning a product, the bureau said Wednesday. 

The new rules bring buy-now-pay-later (BNPL) products into line with traditional credit cards when it comes to consumer protections. A relatively new offering in consumer finance, BNPL services such as Affirm (AFRM), Klarna and Afterpay allow users to make purchases and split the payments over interest-free installments, usually four months. 

“When consumers check out and choose ‘Buy Now, Pay Later,’ they don’t know if they will get a refund if they return their product or whether the lender will help them if they didn’t get what was promised,” bureau director Rohit Chopra said in a press release. “Regardless of whether a shopper swipes a credit card or uses Buy Now, Pay Later, they are entitled to important consumer protections under longstanding laws and regulations already on the books.”

BNPL Industry Reaction is Mixed

The rule drew a mixed response from the industry it affects.

“FTA member companies are committed to strong consumer protections, including for disputes and refunds, and agree these protections should be applied consistently across the industry and to those companies claiming to offer Buy Now, Pay Later-like services,” said Penny Lee, President and CEO of the Financial Technology Association, a trade group representing BNPL companies, in a statement.

However, she said BNPL is "fundamentally different" from credit cards because they don't charge interest and borrowers can't carry a balance.

Affirm said in a statement it already offers dispute resolution to customers and pauses payments while they are resolved.

CFPB Has Scrutinized BNPL Sector in Various Ways

The CFPB has probed the relatively new BNPL sector over data privacy, the financial vulnerability of people who use it, and whether it was making it too easy for customers to rack up too much debt. 

The bureau determined that functionally, BNPL services are like credit cards in many ways and therefore are subject to the same rules and regulations that govern the more established industry. The rule will go into effect in two months, the bureau said. 

Many BNPL providers already have a process for customers to dispute loans, but the new CFPB rules establish it as a legal requirement. Some customers ran into trouble when attempting to dispute BNPL loans, or had to make payments while the dispute was resolved, the bureau found in a 2022 report. Disputes and returns are relatively common—affecting 13.7% of transactions in 2021—since BNPL loans are often offered by clothing merchants, according to the report.

Under the new rules, consumers won’t have to make any payments while the dispute is investigated.

The bureau also determined that BNPL products don't count as credit cards for some purposes and that BNPL companies won't have to follow certain regulations that apply to them, for example, determining that customers are able to repay, bureau officials said in a conference call with reporters.

The new rule is an "interpretive rule," meaning the bureau is saying how existing rules should apply to BNPL, not issuing a completely new regulation.