Governance, Risk & Compliance: GRC
BNPL Regulation Reclassifies Lenders as Credit Card Providers: Here’s What to Know
The Consumer Financial Protection Bureau (CFPB) has released an interpretive rule that applies the Truth in Lending Act (TILA) and Regulation Z to Buy Now, Pay Later (BNPL) products. This new rule reclassifies certain BNPL lenders as credit card providers. This change now brings certain BNPL lenders under Regulation Z’s governance. It also affects how Governance, Risk, and Compliance (GRC) professionals should oversee BNPL products within their organizations.
BNPL lenders must now follow stricter rules, like offering consumers the right to dispute charges and providing clearer disclosures. This regulation matters. Why? BNPL has become a popular way for people to make purchases.
Reports LendingTree, one in three American consumers considered applying for a September 2024 BNPL loan installment.
One in three American consumers considered applying for a September 2024 BNPL loan installment.
Therefore, these new rules aim to protect consumers by holding lenders to the same standards as traditional credit cards.
What is the rule?
The CFPB’s interpretive rule classifies BNPL providers that use digital user accounts to offer installment loans as “credit card issuers” under Regulation Z. This means these BNPL lenders must comply with the same regulations as traditional credit card companies, specifically around billing disputes and periodic statement requirements.
When did it come into effect?
The FAQs providing guidance on this interpretive rule were issued on September 18, 2024. The rule redefines how BNPL products are treated under existing credit card regulations. It essentially brings BNPL lenders under more stringent oversight than before.
Does this rule apply globally or just in the U.S.?
This rule applies solely to lenders operating in the United States. It affects how BNPL providers in the U.S. market must comply with the Truth in Lending Act and Regulation Z. However, compliance professionals in other countries must remain aware of their local regulations governing BNPL products, as such regulations are ever-evolving.
Key points for GRC and Compliance experts:
- BNPL as Credit Cards: Lenders using digital accounts to facilitate BNPL products are now treated as credit card issuers. This applies even if the loan has no finance charge and is payable in four or fewer installments.
- Consumer Protections: BNPL lenders must offer consumers the same dispute rights as credit cardholders, meaning customers can dispute charges and seek refunds through the lender if issues with the merchant arise.
- Limited Public Input: The CFPB issued this rule without the standard public review process, which has raised concerns from organizations like the American Bankers Association and U.S. Chamber of Commerce. They argue the rule should be resubmitted for broader public feedback.
- Ongoing Compliance Needs: GRC professionals must ensure BNPL products meet Regulation Z requirements, including providing clear disclosures and managing billing disputes.
Final Thoughts
Understanding these updates is essential for professionals overseeing financial products and ensuring compliance with evolving regulatory standards. This is particularly important as BNPL grows in popularity, and regulatory scrutiny increases in response to potential consumer risks.
Let’s Start a Conversation
Interested in learning about SAI360 Regulatory Change Management? Schedule a virtual coffee with a team member: Click here to demo our GRC solutions.
Sources:
https://www.lendingtree.com/personal/buy-now-pay-later-loan-statistics/
