Buy-Now, Pay-Later Regulations: 4 Things You Need To Know Before You Shop

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On May 22, 2024, the Consumer Financial Protection Bureau issued a new rule that classified buy-now, pay-later (BNPL) lenders as credit card providers. That means BNPL companies are now held to the same regulatory standards as conventional credit card issuers. 

But what are these regulations, exactly? And what does this mean for consumers? Here’s what you need to know. 

What Is Buy Now, Pay Later?

BNPL is a type of installment loan that lets consumers pay for a purchase through a series of four or fewer payments. Buyers typically pay a little, or nothing, up front and then split the total cost into multiple payments over time, which may or may not come with interest.

You’ve probably encountered BNPL offers if you shop online. It may appear as a separate option at checkout. When you select that option, you’re prompted to provide some personal information, including your name, birth date and bank account or debit card information. 

BNPL loans are increasingly popular, especially as inflation and rising costs make everyday shopping more expensive. The industry is expected to grow to $700 billion by 2028. 

Top BNPL providers include:

• Klarna
• Afterpay
• Affirm
• Latitude
• Tabby 

Although BNPL loans are usually interest-free, they come with certain risks, including:

• Late fees for missed payments
• Other hidden fees
• Risk of overspending on multiple loans
• Impact on your credit score 

New BNPL Regulations

BNPL companies have been criticized for their lack of transparency. The new regulations implemented last May require these companies to provide more information to buyers. 

Because BNPL loans are now regulated like credit cards, they must meet the same compliance standards as credit card providers. That includes:

• Providing refunds: BNPL lenders must now refund installments for canceled or returned orders.
• Investigating disputes: If a buyer has an issue with a BNPL transaction, the lender must pause their payments and investigate the dispute.
• Providing billing statements: BNPL lenders must provide periodic billing statements so the customer knows how much is due for their account and when.

These regulations may come at a cost for popular BNPL companies, and they aren’t all happy about it: Klarna recently published a post supporting BNPL regulation, but criticized the choice to treat BNPL loans like credit cards.

What Does This Mean for Consumers?

The new regulations don’t mean the end of the BNPL industry. You’ll still have the option to buy now and pay later when you shop online or in a physical store. Here’s how the regulations might affect you:

1. You won’t risk losing your payments if you cancel or return an order.
2. You can expect to receive billing statements from your BNPL lender.
3. If you have an issue with your loan, you can ask the lender to pause your payments and acknowledge your dispute. However, this process will vary for each lender.
4. BNPL is still not 100% risk-free.

Shop Safely with BNPL

Regulating BNPL providers is an important step toward protecting consumers, but it doesn’t completely remove the risk. The new rules don’t prevent shoppers from overspending. They also don’t require BNPL companies to report how they interact with credit bureaus, so you might not know how these loans will impact your credit.

To keep your funds safe when you shop, consider:

• Paying up front whenever possible
• Setting up autopay to avoid missed payments on your loan
• Limiting yourself to one BNPL loan at a time

Just like any loan, BNPL can be dangerous if you take on too much debt at once. Make sure you can cover the full amount of your purchase before you choose BNPL at checkout–if you can’t afford it now, you shouldn’t try to pay for it later. 

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