Federal control to be applied on BNPL returns and disputes

In a bid to address BNPL lender requirements to investigate disputes and refund charges, the CFPB introduced a rule that recognises them as credit card providers. By doing so, the regulator intends to make BNPL lenders offer consumers legal protections and rights that apply to standard credit cards, including a right to dispute charges and demand a refund after returning a product via a BNPL loan.

The decision to introduce federal controls over BNPL returns and disputes comes after the CFPB’s extensive research regarding the market, with the regulator uncovering that more than 13% of these types of transactions involve a return or dispute. By not delivering dispute protections, consumers are not safeguarded against billing difficulties or issues when making a return.

As detailed by the regulator, the inquiry follows the rapidly expanding BNPL market in the US and the rise in consumer complaints over refunds and disputed transactions. By implementing the current action, the CFPB intends to provide a more consistent market, whilst supporting consumers. According to official statements, currently, when consumers choose BNPL, they are not certain if they can receive a refund if the product is returned or if the lender can assist them if they did not get what was promised. In addition, the regulator mentions that regardless of the payment method, whether consumers leverage their credit card or utilise BNPL loans, they are entitled to protections under laws and regulations.

Furthermore, the interpretive rule highlights how BNPL lenders meet the criteria for credit card providers, under the Truth in Lending Act. When it comes to consumers, BNPL lenders have the obligation to investigate disputes that users initiate, with the providers being required to pause payments during the process and, in some cases, issue credits. In addition, lenders must refund returned products or cancelled services, as well as offer periodic billing statements similar to those received for conventional credit card accounts.

Also, the CFPB encourages US consumers to submit comments on the current interpretive rule, as they can inform where the regulator can provide further clarity, including via rules and guidance, concerning the BNPL markets. Moreover, it is mentioned that comments are set to be accepted until 1 August 2024.

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