CFPB Says Credit Card Rules to Apply to “Digital User Accounts”—including BNPL

On May 22, the Consumer Financial Protection Bureau (the “CFPB” or “Bureau”) issued an interpretive rule (the “Rule”) describing how lenders issuing digital user accounts to access credit are also “creditors” subject to subpart B of Regulation Z, including the provisions related to periodic statements, billing disputes, and refunds. 

Scope of the Rule

The Rule targets digital user accounts that “consumers use from time to time to access credit products to purchase goods and services.” This includes credit products marketed as “Buy Now, Pay Later” (“BNPL”), which usually allow a consumer to purchase a product on credit, and pay it back in four or fewer installments without a finance charge.

The Rule states that such products meet the regulatory definition of “credit cards” as defined at 12 C.F.R. § 1026.2(a)(15)(i) and adds that the CFPB interprets this definition broadly to encompass digital user accounts that consumers can use through websites, mobile apps, browser extensions, or integrations with merchant websites or mobile apps for the purchase of goods and services.

The Rule further provides that lenders issuing such digital user accounts are “card issuers” under 12 C.F.R. § 1026.2(a)(7) and, consequently, are creditors subject to the regulations appearing in subpart B of Regulation Z.

Requirements for Lenders Subject to the Rule

Lenders issuing digital user accounts as described in the Rule will be required to provide disclosures setting out the fees and pricing structures of the accounts, provide for periodic statements, and comply with provisions of Regulation Z governing billing disputes and refunds. These requirements, set forth in subpart B of Regulation Z, include:

• protections for credit card disputes over unauthorized use, billing errors, and disputes with the merchant (12 C.F.R. §§ 1026.12 and 1026.13);
• refunds when consumers return a product or if the dispute is valid (12 C.F.R. § 1026.12(e));
• disclosures relating to fees and other costs (12 C.F.R. §§ 1026.6 through 1026.9); and
• providing regular statements to aid consumers in keeping track of their transactions and payments (12 C.F.R. § 1026.7).

Notably, the CFPB clarified that lenders issuing digital user accounts to access BNPL are generally not subject to the credit card regulations in subpart G of Regulation Z, which include penalty fee limits and ability-to-repay requirements.

Takeaways

The Rule makes clear that lenders issuing BNPL products and other digital user accounts to access credit will be regulated like credit card providers. If issuing these products, it is critical to ensure that appropriate policies, procedures, and mechanisms are in place to provide compliant disclosures, offer regular billing statements, handle and investigate disputes, and allow customers to obtain refunds for returned products or cancelled services in accordance with subpart B of Regulation Z.