CFPB Signals It Will Drop Rule to Treat BNPL Providers Like Credit Card Companies

The ultimate fate of the Consumer Financial Protection Bureau (CFPB) has yet to be settled, but the past few weeks have seen the CFPB rescind several orders and rules aimed at banks and FinTechs.

For buy now, pay later (BNPL) providers, an interpretive rule classifying BNPL firms that provide pay-in-four options as credit providers is on its way to being dropped. The rule mandated that consumers using BNPL must be afforded the same legal protections that are tied to credit cards, as covered under Regulation Z. We noted in May upon the announcement that BNPL users can dispute charges or demand refunds, while BNPL lenders pause payments during those disputes.

In a Wednesday (March 26) court filing in Washington, D.C., CFPB said that it will revoke the rule, which BNPL providers and their trade groups have said would impose operational burdens.

A Stay in Litigation and a Revocation

In terms of the mechanics, the Financial Technology Association — which had filed suit against the CFPB and the Bureau asked the presiding judge to “stay” the legal battle — noted that “the Bureau is planning to revoke the Interpretive Rule. To allow time for the Bureau to do so, the parties jointly request that the Court stay this litigation until the Interpretive Rule is revoked. The Bureau proposes to provide a status report with the Court by June 2, and every 30 days thereafter, regarding its progress toward revocation.”

The filing also went on to state that the revocation would render “moot” the issues raised in litigation. The rule took effect at the end of last July, but firms were given further time to comply under a grace period.

As PYMNTS reported in the wake of that October filing against the CFPB, the Financial Trade Association — which counts FinTech Block and BNPL provider Klarna among its members — contended that “the new rule is arbitrary and capricious because it fails to consider how its new disclosure obligations are ill-fitted for BNPL products, demonstrating that the CFPB fails to consider and address important aspects of how BNPL products function on the ground.”

In particular, with discussion of what would amount to additional operational burden, the FTA suit had alleged that the periodic statements would have been “infeasible for BNPL products” and detailed that the structure of credit cards, where billing statements must be sent at least 14 days before payment is due, is such that “consumers can make numerous purchases at different times during a billing cycle with payment due for the collective amount on the same date irrespective of when the purchase occurred during the billing cycle.”

BNPL loans typically require payments in two-week increments, so it is “impossible to send periodic statements for all loans collectively” at least 14 days in advance of the next payment, the FTA argued. To get there, BNPL providers would have to incur costs and time building out new technology and changing a broad range of operational workflows and processes.

“By refusing to acknowledge that BNPL providers cannot comply with Regulation Z’s periodic-statement requirement, without changing the structure of BNPL loans, the new rule raises more questions than it answers, creating uncertainty for FTA’s BNPL-provider members, who are left to attempt to comply with the New Rule’s insufficiently articulated requirements in inconsistent ways that will only confuse consumers,” the FTA said in the filing.

The CFPB’s move this week paves the path for more certainty in BNPL operations — namely, that they would not have to pivot under the guidelines of the new classification (and chiefly with the periodic statements). The BNPL providers had already maintained that dispute resolution practices and consumer protections were organically in place.