BNPL Regulation Debate Heats Up as Comment Period Closes

Klarna argues for a bespoke regulatory framework, while AARP supports the rule, emphasizing the need for consumer protections as buy now, pay later (BNPL) usage grows among older Americans.

Time has expired for companies looking to comment on the Consumer Financial Protection Board’s (CFPB) interpretive ruling on BNPL plans. With the CFPB holding options open to revise the regulations after the comment period is over Thursday (Aug. 1), two companies threw what could be termed a Hail Mary pass in the closing minutes.

Klarna — which was joined on the last day of comments by AARP — expressed its concerns in a strongly worded letter to the CFPB. While the filing indicates that Klarna supports regulation of the BNPL industry, it argues that the CFPB’s approach is misguided. The company contends that BNPL products are fundamentally different from credit cards and should not be regulated under the same framework. Klarna emphasizes that BNPL offers a more transparent, fair and sustainable alternative to traditional credit, with lower default rates and fewer consumer complaints.

“Through this Interpretive Rule, the CFPB is attempting to apply to the BNPL industry rules created for the credit card industry over 50 years ago, before the advent of cell phones, personal computers, and digital BNPL accounts,” the Klarna filing reads. “Not only were these regulations created without modern credit products like BNPL in mind, but with American credit card debt topping $1 trillion dollars it begs the question: are these regulations even working for the products they were initially designed for?”

Klarna joined fellow BNPL company Affirm, which on Friday submitted its commentary on the CFPB’s rule. The CFPB’s proposed interpretive rule under the Truth in Lending Act (TILA) and Regulation Z seeks to extend consumer protection measures akin to those applied to traditional credit cards.

In its letter, Klarna raises several issues with the interpretive rule, including clarifying key terms and provisions. Klarna argues that the rule’s timeline for compliance (60 days from publication on May 31) is inadequate, given the extent of clarification needed. The company also points out potential inconsistencies in how the rule would be applied across different BNPL providers, particularly regarding billing cycles and dispute resolution timelines.

“We believe consumers would be better served by initiating a comprehensive, formal rulemaking process to develop a tailored regulatory framework for BNPL that both protects consumers and fosters innovation,” the filing states.

“This approach would enable consumer advocates, industry stakeholders, and regulators to collaborate effectively, ensuring that the primary focus remains on achieving positive consumer outcomes. We urge the CFPB to reconsider its approach, focusing on positive consumer outcomes rather than applying outdated regulations to a new industry.”

Klarna proposes that the CFPB either rescind the interpretive rule and commence a formal rulemaking process specifically for BNPL products or extend the effective date and provide written clarification on raised questions. The company advocates for a bespoke regulatory framework that recognizes the distinct nature and lower risk profile of BNPL products compared to traditional credit cards. Klarna argues that such an approach would ensure robust consumer protection while fostering innovation and competition in the financial services industry.

On the opposite side of the aisle, the AARP, which advocates for Americans over 50, came out in favor of the interpretive rule in its letter to the CFPB. The organization notes that while BNPL use among older Americans is lower than younger borrowers, it is rapidly increasing. AARP argues that applying Regulation Z to BNPL will protect older consumers from fraud and provide much-needed protections, including transparency in pricing, sufficient disclosures, clarity on dispute resolution and refunds, and determination of a consumer’s ability to repay before extending credit.

AARP emphasizes several key areas for consumer protection in BNPL loans. These include ensuring borrowers can repay, providing a seamless process for disputing transactions and obtaining refunds, and offering clear, upfront information on terms, pricing and potential fees associated with BNPL loans. The organization urges the CFPB to establish clear guidelines for disclosures in plain language and in the consumer’s preferred language.

Additionally, AARP encourages the CFPB to provide consumers with easy-to-understand information about BNPL, its uses, and associated risks through resources like FAQs or guidebooks similar to those published for other forms of credit.