Dive Brief:
- The Consumer Financial Protection Bureau will rescind a rule interpretation the Biden administration adopted applying consumer protections for credit card borrowing to the growing buy now pay later industry, rendering moot a lawsuit BNPL providers filed last year.
- The agency disclosed its decision in a status report March 26 filed jointly with the plaintiff, the Financial Technology Association, asking U.S. District Court Judge Ana Reyes to stay litigation in the case as the CFPB works to revoke the rule. FTA members include companies such as digital payments provider Block, corporate cards company Brex, BNPL player Klarna Group and online marketplace eBay.
- The CFPB’s reversal on the Regulation Z interpretation of the Truth in Lending Act as applied to BNPL is the latest in a series of regulations and lawsuit defenses the agency has abandoned as its acting director, Russell Vought, seeks to shrink the bureau. Vought was installed by President Donald Trump, and has sought to reverse Biden administration edicts.
Dive Insight:
The CFPB concluded in its May 2024 interpretation that BNPL providers are card issuers “because such digital user accounts are ‘credit cards’ under Regulation Z.”
That part of the lending act requires issuers to offer consumers an array of disclosures and rights, such as billing statements, liability protection for unauthorized credit use, refunds for returned products and an obligation to investigate consumer disputes regarding billing or a merchant.
“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,” former CFPB Director Rohit Chopra said in a May 2024 news release announcing the change.
The FTA filed suit in October, arguing that the bureau had exceeded its authority and that its interpretation violated the Administrative Procedure Act. The industry also argued that the agency had skirted normal rulemaking procedures to enact the interpretation, seeking to squeeze BNPL products into a lending category to which they do not appropriately fit.
“We applaud the CFPB for committing to revoke the Buy Now Pay Later (BNPL) interpretive rule,” FTA President and CEO Penny Lee said Friday in an emailed statement. “This interpretive rule was deeply flawed, seeking to fundamentally change the regulatory treatment of pay-in-four BNPL products without legislative authority and without a clear and proper understanding of the unique nature of the product.”
The bureau told Reyes that it would file a report by June 2 on the status of its revocation efforts. In February, the association notified the court that it intended to seek summary judgment in the case.
“The revocation is one of several steps the Trump Administration is taking to reverse Biden Administration CFPB actions,” attorneys with the law firm Ballard Spahr wrote Friday in their Consumer Finance Monitor blog.