Enough with the acronyms and let’s get to what you need to know.

Catching up

The Consumer Financial Protection Bureau (CFPB) issued a notice in May 2024 that they were going to begin interpreting and supervising Buy Now Pay Later (BNPL) products (at least the ones where you pay in four instalments) just the same as credit cards. More specifically, this meant they were to be treated the same as credit cards and charge cards under Regulation Z.

While this provides some more certainty for BNPL providers in terms of how CFPB views their products, it’s not the same approach as a rulemaking specific to the differences between credit cards and BNPL. This also left A LOT of questions and invited feedback from consumers, consumer advocacy groups, banks, and the BNPL providers themselves, who all wanted more clarity. These questions and comments were posted publicly as part of the open notice and comment period, so the CFPB has put together some robust answers to the flurry of questions.

What’s new

As part of a series of compliance resources that CFPB provides to lenders and supervised entities, CFPB posted a set of FAQs regarding the application of Reg Z to BNPL products.

Does it answer all of the questions that were presented in the notice and comment period? Not really. Does it get into some of the specific definitions of terms and applicable sections of Reg Z? Yes. It’s a starting point to provide clarity to BNPL providers on how to meet the standards for providing timely and accurate information to consumers and it also provides examples of when and how consumers should receive information like periodic statements. 

The last question in the series provides a specific example of the application of late fees and this example makes it quite clear that the application of Reg Z effectively creates at least a 3 day grace period before BNPL instalment payments can be considered late. While a few providers have always had a grace period, this presents one area where BNPL providers will adjust products and risk models accordingly.

What's next

As BNPL providers (and perhaps even some credit card companies) begin to integrate the guidance materials in their products and workflow, this series will hopefully expand to include more answers to questions that emerge along the way. One area where some questions remain unanswered is related to how BNPL providers are expected to treat BNPL accounts that are closely integrated with debit card products or converted to BNPL after the transaction has been made via a prepaid card or debit card. Perhaps there is more to come as the features and complexity of BNPL products evolve or consolidate as well.

The effective date for CFPB’s interpretive rule was July 30, 2024, but CFPB Director Rohit Chopra has indicated in prior blog posts that he does not intend to seek penalties during the transition period where companies are acting “in a good faith and expeditious manner” toward compliance. So BNPL companies have a narrow but quickly closing window to get this information synthesized for product, compliance, risk, and support teams to meet these standards.