‘Buy Now, Pay Later’ Borrowers Get More Safeguards With New Rule

Borrowers of the popular “buy now, pay later” installment loans should find it easier to dispute charges and get refunds under a new rule announced by the federal government last week.

The Consumer Financial Protection Bureau, which has been scrutinizing the alternative loans for more than two years, ruled that “buy now, pay later” lenders were credit card providers and had to offer borrowers some of the same safeguards that conventionalcreditcards provided. Those protections give borrowers the right to dispute charges and halt payments while their complaints are investigated, and to get refunds for returned items. Lenders must also provide billing statements.

The bureau issued its findings as an “interpretive” rule, meaning it stated its own interpretation of existing law. “Regardless of whether a shopper swipes a credit card or uses ‘buy now, pay later,’ they are entitled to important consumer protections under longstanding laws and regulations already on the books,” Rohit Chopra, the director of the bureau, said in a statement.

The loans, digital versions of old-time layaway plans, are commonly known as “pay in four” because they’re often advertised as purchases that can be split into four payments over six weeks. Shoppers can get a quick approval for the loan at checkout, often with a minimal credit check, and pay zero interest. Some lenders charge late fees for missed payments, while others simply cut off borrowers from new loans until they pay.

Some card protections under the Truth in Lending Act don’t apply to the alternative loans, the consumer bureau found. Those include a requirement that card lenders assess a borrower’s ability to repay a debt before making a loan, and limits on penalties like late payment fees.

“Those are a number of remaining concerns,” said Jennifer Chien, a senior policy counsel for financial fairness at Consumer Reports.