Buy Now, Pay Later platforms will soon be more regulated

Buy Now, Pay Later platforms have long marketed themselves as different from traditional credit cards, providing a more accessible and often interest-free alternative. But soon, they’ll be regulated in some of the same ways as more traditional credit offerings. 

The Consumer Financial Protection Bureau announced new rules today requiring companies like Afterpay and Klarna to investigate when customers dispute a charge, and to issue refunds for returned products. They’ll also have to provide periodic billing statements.

Many of Buy Now, Pay Later’s repeat customers are financially vulnerable to begin with, says Nadine Chabrier with the Center for Responsible Lending. 

“Users tend to be younger. They tend to be Black, Latino, consumers of color,” she said.

Chabrier said many have lower annual incomes and a high risk of becoming overextended. 

And the CFPB’s rules are the first real attempt to protect those borrowers, said Cliff Robb, a professor of consumer science at the University of Wisconsin, Madison.

“It’s adding a little bit more structure to what’s been a pretty loosely regulated space,” he said. Where customers sometimes get stuck paying off loans even after receiving a faulty product or returning one to the retailer. 

But the new standards won’t make waves in most of the Buy Now, Pay Later industry. 

“Not at all. The big players already have these practices in place for the most part,” said analyst Claire Tassin with Morning Consult.

Instead, she said, the new rules send companies like Affirm and Afterpay a message: “That the CFPB is going to treat them the same as credit card providers going forward.”

Probably including tighter regulations down the road, like requiring these platforms to vet borrowers more thoroughly to make sure they can pay back their loans. 

“I actually think that benefits BNPL lenders,” said Chi Chi Wu, a senior attorney with the National Consumer Law Center.

She said strong buyer protections are part of what makes credit cards so appealing. And they could help Buy Now, Pay Later reach new customers. 

“Older consumers, such as myself, a Gen X-er might feel more comfortable using them,” she said.

And maybe even replace borrowers shut out by stricter rules.