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Buy now, pay later services have to act more like credit card providers now

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Purchase now, pay later (BNPL) services—often abbreviated as BNPL—are now subject to similar regulations as credit card providers. The Consumer Financial Protection Bureau (CFPB) issued an interpretive rule on Thursday that categorizes BNPL services as credit card providers, obligating them to investigate disputed purchases and adhere to other regulations.

BNPL services enable customers to buy a product and then repay it in interest-free installments. According to the new guidelines, BNPL platforms such as Klarna, Afterpay, and Affirm must issue refunds for returned items or canceled services and send regular billing statements to customers. The CFPB’s decision follows an investigation into BNPL services, revealing that BNPL is often used as a direct substitute for traditional credit cards.

Some BNPL providers assert that they already meet the criteria outlined by the CFPB. Klarna, for instance, emphasized in a blog post its efforts to safeguard customers by handling refunds, investigating disputes, and furnishing purchase details. Nevertheless, Klarna contests the CFPB’s classification of BNPL as credit cards.

“While Klarna welcomes the CFPB’s move to regulate BNPL, which we have actively advocated for over the years,” stated Klarna spokesperson John Craske, “it is perplexing that the CFPB fails to recognize the fundamental distinctions between interest-free BNPL and credit cards, which profit from ensnaring customers in a cycle of exorbitant interest rates month after month.”

In a similar vein, Affirm CEO Max Levchin expressed satisfaction with the Bureau’s effort to promote uniform industry standards, many of which align with Affirm’s operations.

BNPL services have surged in popularity amid soaring credit card interest rates, prompting even Apple to introduce its BNPL service. However, there are concerns that BNPL could lead some individuals to overspend and accumulate debt. Reports suggest that BNPL services do not need to report loans to credit reporting agencies, making it challenging to ascertain the extent of indebtedness among users.