On September 10, Senators Jack Reed (D-RI), Sherrod Brown (D-OH) and Tammy Duckworth (D-IL)
penned a letter expressing their support for a new interpretive rule by the CFPB classifying “Buy Now, Pay Later” (BNPL) providers as credit card issuers.
As previously covered by InfoBytes, on May 22, the CFPB issued an
interpretive rule stating that certain consumer protection provisions of Regulation Z apply to BNPL accounts, asserting that “digital user accounts” used to access BNPL credit are considered “credit cards” under Regulation Z. In their letter, the senators characterized the rule as an “important step toward clarifying the regulatory status of BNPL loans.”
In the letter, the senators reported 43 percent of BNPL users were behind on payments and 28 percent delinquent on other debts, which they concluded shows that BNPL users are at greater risk of financial distress compared to credit card holders. They argued that the new rule would help protect consumers by requiring BNPL providers establish uniform methods for calculating the cost of credit, provide meaningful disclosure of those costs to consumers, provide standardized mechanisms for resolving credit billing disputes, and provide periodic statements. The senators also called for the CFPB to initiate separate rulemaking to bring the largest BNPL providers under federal supervision. Finally, to better assess whether BNPL users face elevated levels of defaults or delinquencies, the letter urged the CFPB to publish current data on the state of the BNPL market and to update this information annually.
