There Are New Rules for ‘Buy Now, Pay Later’ Programs — Here’s What to Know

A federal financial protection watchdog says Buy Now, Pay Later (BNPL) companies must now provide shoppers with credit card-level protections.

After more than two years of studying the BNPL market, the U.S. Consumer Financial Protection Bureau (CFPB) created a new rule on Wednesday that ensures BNPL lenders, including Affirm, Klarna, and Afterpay give Americans essential rights and protections.

Under the new rule, BNPL lenders will have to do three things:

1. Look into payment disputes started by customers. While the company investigates the issue, the customer does not have to keep making payments.
2. Credit a refund to the shopper’s account If someone returns an item or cancels their order.
3. Send billing statements periodically, just like credit card companies do.

These are all protections that customers previously didn’t have across companies by default, according to CFPB director Rohit Chopra.

Related: Klarna Says Its AI Assistant Does the Work of 700 People

“When consumers check out and choose Buy Now, Pay Later, they don’t know if they will get a refund if they return their product or whether the lender will help them if they didn’t get what was promised,” Chopra said, in a statement.

^{Rohit Chopra, director of the Consumer Financial Protection Bureau (CFPB). Photographer: Tierney L. Cross/Bloomberg via Getty Images}

A 2022 market report from the CFPB showed that almost 14% of BNPL purchases from 2019 to 2021 at Affirm, Afterpay, Klarna, PayPal, and Zip (formerly Quadpay in the U.S.) involved returns or disputes.

The total dollar value of returns in 2021 at those five firms was $1.8 billion, per the report.

The regulations “make clear how the agency would apply longstanding law and regulation to this popular form of credit,” Chopra stated.

Related: ‘Buy Now Pay Later’ Increasingly Popular Among High Earners

Affirm, a BNPL company that more than half of U.S. consumers recognize by name, already pauses payments when a customer opens a dispute and sends monthly statements, as do other BNPL lenders like Klarna.

A Klarna rep told Entrepreneur that CFPB’s announcement “is a significant step forward in regulating BNPL, which Klarna has actively called for over many years.” An Affirm company rep responded with an X thread from CEO Max Levchin, who wrote “clarity and a level playing field from CFPB = good for consumers & Affirm.”

Clarity and a level playing field from CFPB = good for consumers & Affirm. Rest of the industry should step up to live up to our promise vs. repackaging the same old gotchas from credit cards in shinier wrappers! 5/5

— Max Levchin (@mlevchin) May 22, 2024

The global BNPL market was valued at over $250 billion in 2022.