The interpretive ruling by the US Federal agency means that BNPL lenders must provide consumers some key legal protections and rights that apply to conventional credit cards. These include a right to dispute charges and demand a refund from the lender after returning a product purchased with a buy now, pay later loan.

The CFPB launched its inquiry into the rapidly expanding BNPL market more than two years ago and continues to see consumer complaints related to refunds and disputed transactions. In a market report, the CFPB uncovered that more than 13% of BNPL transactions involved a return or dispute. In 2021, people disputed or returned $1.8 billion in transactions at the five firms surveyed.

CFPB Director Rohit Chopra says that like conventional credit cards, buy now, pay later combines payment processing and credit services, while charging transaction fees to merchants and therefore should be treated in the same manner.

“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,” he says. “Regardless of whether a shopper swipes a credit card or uses buy now, pay later, they are entitled to important consumer protections under longstanding laws and regulations already on the books.”

For consumers, this means BNPL lenders must investigate disputes, refund returned products or cancelled services and provide periodic billing statements like the ones received for classic credit card accounts.

The CFPB is encouraging comments on the findings with a final date for submission by 1 August.