U.S. Chamber Comments on CFPB Interpretative Rule on Buy Now Pay Later Products

The Center for Capital Markets Competitiveness ("CCMC") and the American Bankers Association ("ABA") appreciates the opportunity to submit comments to the Consumer Financial Protection Bureau ("CFPB") regarding its Interpretive Rule on Truth in Lending (Regulation Z); Use of Digital User Accounts To Access Buy Now, Pay Later Loans (the "Interpretive Rule").[1]

The entrance of Buy Now, Pay Later ("BNPL") products into the financial services market has benefitted consumers. BNPL products offer consumers an additional option in purchasing goods and services. In particular, BNPL products benefit those consumers who lack access to or do not want to use more traditional forms of credit. BNPL products have also introduced further innovation and competition into the marketplace for financial services. However, the novel structure of BNPL products has resulted in some regulatory uncertainty.

The CCMC and ABA accordingly would welcome additional regulatory transparency surrounding BNPL products. This would benefit consumers by clarifying applicable consumer protection requirements, which in turn would promote consistency in those protections across the available BNPL products on the market. Clarifying the regulatory scheme that applies to BNPL products also would help to ensure that BNPL providers are held to standards similar to providers of other consumer financial products and services.

The CFPB pursues the present Interpretive Rule with that goal, seeking "to clarify existing obligations for market participants with specific business practices."[2] To that end, the Interpretive Rule states that "digital user accounts used to access credit," including BNPL products, are "credit cards" under Regulation Z and that providers offering digital user accounts used to access credit are "card issuers" under Regulation Z. As such, the Interpretive Rule states Subpart B of Regulation Z applies to BNPL products and their providers. Subpart B is titled "Open-End Credit," however, consistent with the Truth in Lending Act ("TILA"), portions of Subpart B also apply to non-open-end credit for which no finance charge is imposed, or which is payable in four or fewer installments.[3] The Interpretive Rule specifically identifies that BNPL providers must comply with the Regulation Z provisions governing periodic statements, billing disputes, and consumer rights to refunds.

While the CCMC and ABA share the CFPB's interest in providing regulatory clarity to BNPL products, the Interpretive Rule should have been promulgated as a proposed rule subject to Notice and Comment. Further, the Interpretive Rule is likely to increase regulatory uncertainty around BNPL products. In particular, the CFPB does not define key terms necessary for understanding the Interpretive Rule's scope, including what accounts may be considered a "digital user account." The CFPB also does not fully explain the reasoning behind the rule or its potential impacts. Further, the effective date of 60 days after publication in the Federal Register also does not provide sufficient opportunity to comment on the Interpretive Rule, much less actually comply with it.

We accordingly ask the CFPB to consider the following points:

· The CFPB should withdraw the Interpretive Rule and instead issue a Notice of Proposed Rulemaking subject to notice and comment.

· The CFPB should clearly define "digital user account" as used in the Interpretive Rule, clarify how the Regulation Z requirements apply to digital user accounts, and clarify that the Interpretive Rule does not apply to merchants.

· The CFPB should apply its upcoming Section 1033 rule to BNPL products without first providing notice.

· The CFPB should more comprehensively detail on why it is issuing the Interpretive Rule and better describe the impact the Interpretive Rule may have on the existing financial market.

· The CFPB should extend the effective date of the Interpretive Rule to provide a meaningful opportunity for comment before the Interpretive Rule becomes effective and a reasonable period for BNPL providers to comply.

Read the full letter here.

[1]See CFPB, Interpretive Rule; Truth in Lending (Regulation Z); Use of Digital User Accounts To Access Buy Now, Pay Later Loans, 89 Fed. Reg. 47,068 (May 31, 2024), https://www.govinfo.gov/content/pkg/FR-2024-05-31/pdf/2024-11800.pdf (hereinafter "Interpretive Rule").

[2]Id. at 47,069.

[3] 15 U.S.C. § 1602(g), 12 C.F.R. § 1026.2(a)(17)(iii).

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