An interpretive rule that applies some Regulation Z (Truth in Lending Act) requirements to lenders marketing “buy now, pay later” (BNPL) loans that are accessed through digital user accounts is set to take effect July 30 but is also out for public comment until Aug. 1.
The Consumer Financial Protection Bureau (CFPB), in a Federal Register notice, said its interpretive rule focuses on the applicability of subpart B of Regulation Z to lenders that issue digital user accounts used to access credit, including those lenders that market loans as BNPL.
These lenders meet the criteria for being “card issuers” for purposes of Regulation Z, it said, and they are also “creditors” subject to subpart B of Regulation Z – including those provisions governing periodic statements as well as credit card dispute and refund rights.
It noted, however, that such lenders are generally not subject to the credit card regulations in subpart G, for example, provisions addressing penalty fee limits and ability-to-repay requirements.
In a summary, the bureau noted that traditional BNPL products are closed-end loans payable in four or fewer installments without a finance charge, used to make purchases on credit. Consequently, BNPL loans are subject to some, but not all, of Regulation Z’s credit card regulations, it said.
The regulation specifically states that subpart B, while titled “Open-End Credit,” also applies to credit that is not open end if, as with BNPL, the credit is not subject to a finance charge and is not payable by written agreement in more than four installments.
“This is the case because Congress expressly instructed the Bureau to apply open-end credit regulations to this form of credit that is not open end,” the CFPB wrote. “The Truth in Lending Act (TILA) says that ‘the Bureau shall, by regulation, apply [open-end credit] requirements to [card issuers that extend credit with no finance charge that is payable in four or fewer installments], to the extent appropriate, even though the requirements [of the open-end credit provisions] are by their terms applicable only to creditors offering open-end credit plans.’”