Buy Now, Pay Later Gets a Reality Check: New Rules Bring BNPL Services Closer to Credit Cards
The reign of carefree spending with buy now, pay later (BNPL) services might be coming to an end. On Thursday, the Consumer Financial Protection Bureau (CFPB) announced new regulations that classify BNPL providers as credit card companies, subjecting them to stricter rules.
What are BNPL services?
BNPL services like Klarna, Afterpay, and Affirm have exploded in popularity, offering a seemingly easy way to split purchases into interest-free installments. This can be appealing for consumers, especially those wary of credit card debt.
New Rules for BNPL Providers
The CFPB's new guidelines require BNPL services to:
- Investigate disputes: Had a problem with your purchase? BNPL providers must now look into these disputes, similar to credit card companies.
- Provide refunds: Changed your mind or need to return something? BNPL providers must now handle these situations just like credit card companies do.
- Issue billing statements: Get ready for regular updates on your BNPL spending, as these services will now be required to send periodic billing statements.
Why the Change?
The CFPB launched an investigation into BNPL after finding it was "often used as a close substitute for conventional credit cards." Basically, these services were offering similar features (split payments, financing) without the same level of consumer protections.
Industry Reaction: Embracing or Resisting Change?
There's a mixed bag of responses from BNPL companies.
- Klarna: While they say they already meet most of the CFPB's criteria, they disagree with the classification as credit cards. They argue their interest-free model is fundamentally different from credit card debt.
- Affirm: They seem more accepting, highlighting their existing commitment to consumer protections and praising the move towards consistent industry standards.
The Future of BNPL
BNPL's popularity is undeniable, especially with rising credit card interest rates. However, concerns exist about potential overspending and hidden debt. The lack of BNPL debt being reported to credit bureaus makes it difficult to gauge the true financial impact on consumers.
The Takeaway
These new regulations represent a significant shift for BNPL. Consumers will benefit from increased protections, but it remains to be seen how these changes will affect the overall BNPL industry. One thing's for sure: the days of completely unregulated BNPL appear to be over.
