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Understanding the New CFPB Rule for BNPL Providers

The Consumer Financial Protection Bureau (CFPB) issued an interpretive rule on May 22, 2024, which classifies buy now, pay later (BNPL) lenders as credit card issuers. This new rule is significant as it mandates BNPL providers to offer consumers the same protections and disclosures available with traditional credit cards. Here’s what you need to know if you use or are considering using a BNPL plan.

What the New Rule Means for BNPL Providers

The new rule requires BNPL providers to adhere to some of the same regulations as conventional credit card issuers:

• Compliance with Existing Law: The interpretive rule is not a new law but an application of the existing Truth in Lending Act (TILA), implemented by Regulation Z, to BNPL providers.
• Definition of Credit Cards: The CFPB considers the digital accounts provided by BNPL plans as “single credit devices,” thus classifying them as credit cards under the law.
• Scope of Application: The rule applies to BNPL plans that allow interest-free and finance-charge-free installment loans in four or fewer payments, commonly known as “pay-in-4” plans.

While the rule does not equate pay-in-4 BNPLs with traditional credit cards in every aspect, it does require compliance with 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 accepted comments on the rule until August 1, 2024, receiving a mix of support and opposition. The CFPB may clarify or revise the rule and explore other regulatory measures for BNPL providers. Additionally, some states have introduced bills that could impose new requirements on BNPL providers.

What the New Rule Means for Consumers

The new rule imposes three key requirements on BNPL providers that could impact consumers:

• Paused Payments During Disputes: If you dispute a transaction, the BNPL provider must investigate and pause your payments, potentially issuing a credit during the investigation.
• Refunds for Returned or Canceled Purchases: BNPL providers must issue refunds for returned products or canceled services.
• Billing Statements: BNPL providers must send periodic billing statements, similar to those from conventional credit cards.

Some BNPL providers already offer these protections, so you might not notice significant changes. However, the rule ensures these protections are legally required.

Using and Managing BNPLs

BNPL plans can be a useful option for financing purchases, especially if you have difficulty qualifying for other credit forms and can pay off the loan on time. Pay-in-4 plans often do not have interest charges or fees, but late payments can incur fees, and unpaid accounts may be sent to collections, affecting your credit.

To avoid financial trouble, monitor your income and expenses, including BNPLs, to prevent overspending. Compare BNPLs with other credit forms, such as conventional rewards credit cards or unsecured personal loans, to determine the best fit for your needs.

Your eligibility and terms for conventional credit cards, personal loans, and longer-term BNPL loans depend on your credit history and scores. You can obtain 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.

Contact O1ne Mortgage for Your Mortgage Needs

At O1ne Mortgage, we are dedicated to providing you with the best mortgage services. If you have any questions or need assistance with your mortgage, please call us at 213-732-3074. Our team of experts is here to help you every step of the way.

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