What Buy Now, Pay Later lenders are doing to be upfront with borrowers
One of the ways that the CFPB promotes more innovation in the market and competition for consumers is by increasing transparency about how existing laws apply to emerging products. That’s why we have issued more guidance, and more specific guidance, to encourage new market entrants to focus on technological or business innovation instead of innovative lawyering to invent new loopholes.
As part of this effort, the agency released an interpretive rule in May that explained how some of the existing federal laws and regulations, like the Truth in Lending Act and Regulation Z, apply to Buy Now, Pay Later loans. While not required by law, we invited the public to submit comments on this interpretive rule.
The Buy Now, Pay Later industry is responding favorably and constructively. Companies understand that they shouldn’t have to compete with lenders that sidestep the law. We received feedback through the comment period and held meetings with Buy Now, Pay Later providers to answer questions, including about which sections of Regulation Z specifically apply to different business models. Many Buy Now, Pay Later lenders are working diligently and in good faith to come into compliance. To support this transition, respond to questions we received in the comments, and ensure all entities benefit from the clarifications provided in those meetings, we plan to issue a set of Frequently Asked Questions next month to help lenders make transitions.
In addition, the CFPB does not intend to seek penalties for violations of the rules addressed in the interpretive rule against any Buy Now, Pay Later lender while it is transitioning into compliance in a good faith and expeditious manner. We expect that other federal and state regulators will follow the same path.
All of this is part of CFPB’s work to ensure consumers can file disputes and have payments paused while those disputes are being investigated, receive refunds when they return products or cancel services, and benefit from helpful periodic billing statements. We’re continuing to work on other ways to make sure that Buy Now, Pay Later doesn’t lead to people drowning in debt.