WASHINGTON, D.C.— Brady Williams, Better Markets’ Legal Counsel, issued the following statement on a joint comment letter from consumer protection advocates supporting the Consumer Financial Protection Bureau’s (CFPB’s) Interpretive Rule on the Use of Digital User Accounts to Access Buy Now, Pay Later Loans.
“The CFPB’s guidance will help protect millions of vulnerable consumers from ‘buy-now, pay-later’ or ‘BNPL’ loans, which often come with unfair, burdensome, and poorly disclosed features. These loans are an increasingly popular credit device for retail purchases. When consumers go through the check-out line, they are often presented with an opportunity to finance their purchase through the use of BNPLs. It’s a form of credit that allows a consumer to purchase a product, take it home, and then pay back the loan over four installments. But ugly surprises often come with these loans, including high interest rates if the consumer defaults, difficult hurdles if billing disputes or the need for refunds arise, and other terms that disadvantage consumers. These features are especially harmful to vulnerable consumers who tend to rely on BNPLs.
“Yet some businesses that rely on BNPLs contend that they are not subject to the same consumer protections that go along with more traditional lending products. The CFPB’s new interpretive rule explains that when borrowers use BNPLs, they are entitled to some of the same rights and protections of the Truth in Lending Act that apply to traditional credit cards. This means that consumers should receive disclosures that clearly lay out fees, pricing structures, and rights and protections for things like billing disputes and refunds.
“The joint comment letter submitted today to the CFPB highlights the need for these important protections and praises the Bureau for beginning to address problems in this underregulated industry. However, the comment letter also observes that BNPL providers should be required to comply with several other Truth-In-Lending-Act credit card rules, which the Bureau’s Interpretive Rule does not include. Specifically, the joint comments call upon the CFPB to require BNPL providers to assess a borrower’s ability to repay before extending BNPL credit. We also encourage the Bureau to require that any penalty fees associated with BNPL credit be subject to the same requirements that come with credit cards and that those fees be ‘reasonable and proportional’ to the costs actually incurred by the lender.
“We applaud the CFPB for this important rule and look forward to seeing the benefits it will provide to consumers. We also encourage the CFPB to consider imposing additional consumer protections from the Truth In Lending Act to better protect financially vulnerable BNPL borrowers.”
You can find the joint comment letter here.
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Better Markets is a non-profit, non-partisan, and independent organization founded in the wake of the 2008 financial crisis to promote the public interest in the financial markets, support the financial reform of Wall Street and make our financial system work for all Americans again. Better Markets works with allies—including many in finance—to promote pro-market, pro-business and pro-growth policies that help build a stronger, safer financial system that protects and promotes Americans’ jobs, savings, retirements and more. To learn more, visit www.bettermarkets.org.
