AFC Praises New BNPL Recommendations, But Warns That Providers Need ‘Additional Time’ to Comply

The American Fintech Council, the industry association representing responsible fintech companies and innovative banks, has welcomed new recommendations regarding buy now, pay later (BNPL) but warns that providers need more time to ensure compliance. In May 2024, the Consumer Financial Protection Bureau (CFPB), the independent agency of the US government responsible for consumer protection in the financial sector, published a proposed interpretive rule to clarify existing obligations for BNPL market participants with ‘specific business practices’ and welcomed comments and feedback in response to the publication. The new proposed interpretive rule would ensure that nonbank financial companies adhere to the same credit card lending rules as large banks, credit unions, and other financial institutions already supervised by the CFPB. Now, the American Fintech Council has submitted its own response to the CFPB’s request for comment on the Use of Digital User Accounts to Access Buy Now, Pay Later Loans. In a letter, it applauded the CFPB for its 2022 report on BNPL and its continued engagement with industry leaders. The American Fintech Council welcomed the recommendations by the CFPB but requested additional time and clarity to ensure that all BNPL providers, if necessary, can adjust their programmes to ensure they comply with new rules – to ensure consistent consumer product experiences. “Regulatory clarity and consistent standards are critical for providers offering safe, transparent and responsible financial services and even more important for consumers who expect protections when utilising financial services including Buy Now Pay Later,” explained Phil Goldfeder, CEO of the American Fintech Council. “We are encouraged by the work the CFPB has done to better understand the BNPL industry. We welcome the opportunity to provide feedback to ensure the interpretive guidance increases consumer protection without limiting competition or innovations that provide greater choice and transparency for consumers.”

Ensuring a fair regulatory environment

In the letter, Ian Moloney, SVP, head of policy and regulatory affairs at the American Fintech Council, said: “It is worth noting that the Bureau’s Interpretive Rule establishes specific requirements for BNPL lenders that were not previously identified through a notice and comment period or other formal rulemaking process. “The requirements established under Regulation Z and identified in the Interpretive Rule are novelly applied to BNPL lenders. Thus, these lenders may need additional time to modify their processes and practices to ensure they are fully compliant with the requirements set forth in the relevant sections of Regulation Z, as identified in the Interpretive Rule.” As part of its mission to promote affordable, responsible and transparent financial products, the American Fintech Council has developed and adopted specific policy standards for the provision of BNPL products, including classifying products as loans, ensuring consistent and transparent terms, underwriting every transaction at the point of sale, providing consumers with closed-end loan disclosures required by the Truth in Lending Act (TILA), and working with credit bureaus to improve reporting standards.