FinTech Association Sues CFPB; Says BNPL Rule ‘Oversteps Legal Bounds’

The Financial Technology Association (FTA) has filed a lawsuit challenging the Consumer Financial Protection Bureau’s (CFPB) final interpretive rule on pay-in-four buy now, pay later (BNPL) products, saying the rule “oversteps legal bounds.”

The CFPB ruled May 22 that BNPL vendors are credit card providers and must provide some key legal protections and rights delivered by conventional credit cards, such as the consumer’s right to dispute charges and demand a refund from the lender.

“Unfortunately, the CFPB’s rushed interpretative rule falls short on multiple counts, oversteps legal bounds, and risks creating confusion for consumers,” FTA President and CEO Penny Lee said in a Friday (Oct. 18) statement announcing the lawsuit. “The CFPB is seeking to fundamentally change the regulatory treatment of pay-in-four BNPL products without adhering to required rulemaking procedures, in excess of its statutory authority, and in an unreasonable manner.”

Reached by PYMNTS, the CFPB declined to comment on the FTA’s statement.

When announcing the regulator’s interpretative rule in May, CFPB Director Rohit Chopra said: “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.”

In the Friday statement announcing the FTA’s lawsuit targeting this rule, Lee said the industry is committed to working with regulators to craft rules that fit the unique nature of pay-in-four BNPL products.

The CFPB’s rule “shows an underlying misunderstanding of BNPL,” Lee said, adding that millions of American consumers are having positive experiences with these products and benefiting from zero interest on outstanding balances, no compounding interest and measures to prevent them from taking on an excessive debt burden.

“Lasting regulation must be grounded in existing statutory procedures and provide the public with an adequate opportunity to participate in the formulation of those rules,” Lee said in the statement. “We urge the CFPB to withdraw its interpretive rule and engage in an appropriate process to determine how best to regulate pay-in-four products.”

BNPL providers already have processes set up when and as disputes might happen, PYMNTS reported in May.