Consumers can now get refunds from Buy Now, Pay Later loans, CFPB says

Buy Now, Pay Later programs are effectively the same as credit cards, the Consumer Financial Protection Bureau said Wednesday.

In what it called an interpretive rule, the federal consumer watchdog agency said so-called BNPL lenders are obligated to offer refunds and allow users to dispute charges just like they can with traditional credit cards.

“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,” Consumer Financial Protection Bureau Director Rohit Chopra said in a statement.

“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.”

The CFPB said it has been investigating the BNPL industry for more than two years and often receives complaints about refunds and disputed transactions in such programs. About 13% of BNPL transactions involve a dispute or return, the agency said.

BNPL programs that let customers pay for products over time without paying interest have grown in recent years. A new Federal Reserve Economic Well-Being of U.S. Households report released this week said 14% of U.S. adults reported using Buy Now, Pay Later programs last year — a 2% increase compared with 2022.

Consumers’ top reasons for using BNPL were wanting to spread out payments (87%) and convenience (82%). More than half of BNPL users said it was the only way they could afford to buy what they did.

The CFPB said BNPL programs are advertised as a payment option at checkout, similar to credit cards. They work as digital accounts that link to a company’s web site or mobile app. Merchants are charged transaction fees, similar to credit cards.

The CFPB said BNPL programs fall under the purview of the Truth in Lending Act, requiring lenders to investigate disputes initiated by consumers and pause payments while they are investigated. The act also ensures lenders credit refunds to consumer accounts and provide billing statements.

“President Biden has encouraged his Administration to do everything possible to crack down on corporate rip-offs,” National Economic Council Deputy Director Jon Donenberg said in a statement about the rule. “The Consumer Financial Protection Bureau is answering that call by making sure Buy Now, Pay Later platforms abide by the law, including providing refunds when products are returned or not delivered.”

The interpretive rule comes less than a week after the Supreme Court preserved the current funding structure for the agency, which was established during the Obama administration to enforce federal protections for consumer financial products.