CFPB’s FAQ clarifies some BNPL regulatory questions but leaves more yet to be answered

The news: The Consumer Financial Protection Bureau (CFPB) offered some clarity for its interpretive rule that would treat BNPL loans like credit cards, per a CFPB blog post.

The FAQs are a direct response to questions the CFPB received from meetings with BNPL providers and comments submitted to the agency.

Here’s what the FAQs clarified:

Defining BNPL products

• The interpretive rule only applies to Pay in 4 BNPL loans. Other BNPL loans, however, may be covered by other parts of Regulation Z, which governs lending.
• The CFPB defines Pay in 4 as closed-end installment loans made to buy goods and services. They must also be payable in four installments and cannot incur interest or other finance charges.

This leaves a lot of open-ended questions, as many BNPL loans no longer fit this criteria.

• A lot of BNPL loans incur interest: 75% of Affirm’s volume came from interest-bearing installments in its fiscal Q4 2024 (ended June 30).
• BNPL fintechs like Affirm and Klarna have also been rolling out plans with differing lengths: In June, Affirm added Pay in 2 and Pay in 30, for example.

How to handle periodic statements

• Providers must mail or deliver a periodic statement for every billing cycle in which the consumer has a debt or credit balance of more than $1.
• They can choose the length of their billing cycles, but they must be equal in length and no longer than a quarter of a year.
• Providers can either treat each BNPL loan as a separate credit account with their own statements, or they can treat multiple BNPL loans as a single, multi-featured credit account with a single statement.

This flexibility is a win for BNPL players. Affirm had argued that treating each BNPL transaction as a new line of credit could end up confusing consumers.

What is considered a late payment

• Payments received within 14 calendar days after mailing or delivery of the periodic statement cannot be considered late.
• Consumers with a late payment can incur late fees and face delinquent credit reporting, going to collection, or terminating benefits.

This differs from how some providers handle late payments. Klarna, for example, charges a late fee if a payment is more than 10 days late. Extending this time frame could eat into Klarna’s revenues.

Unanswered question: The CFPB didn’t directly address Klarna’s concerns about dispute periods.

• Providers just have two billing cycles to handle a dispute. A 14-day billing cycle would mean BNPL firms have less than half the time to address disputes as credit card companies.
• This could lead BNPL providers to extend their billing cycles—which could also give consumers even longer to avoid late fees.

Our take: While some of these clarifications are a win for providers, other aspects could eat into BNPL player’s revenues.

They will need to lean into their non-Pay in 4 products and services like Pay Now or push affiliate marketing to keep up their revenues.