Get All Access for $5/mo

There Are New Rules for 'Buy Now, Pay Later' Programs — Here's What to Know Paypal, Affirm, and Klarna are just a few companies affected by the new protections.

By Sherin Shibu Edited by Melissa Malamut

Key Takeaways

  • Buy Now, Pay Later (BNPL) companies such as Affirm, Klarna, and Afterpay now have to follow new rules.
  • BNPL lenders now have to look into customer disputes, refund returned products, and provide billing statements.

A federal financial protection watchdog says Buy Now, Pay Later (BNPL) companies must now provide shoppers with credit card-level protections.

After more than two years of studying the BNPL market, the U.S. Consumer Financial Protection Bureau (CFPB) created a new rule on Wednesday that ensures BNPL lenders, including Affirm, Klarna, and Afterpay give Americans essential rights and protections.

Under the new rule, BNPL lenders will have to do three things:

  1. Look into payment disputes started by customers. While the company investigates the issue, the customer does not have to keep making payments.
  2. Credit a refund to the shopper's account If someone returns an item or cancels their order.
  3. Send billing statements periodically, just like credit card companies do.

These are all protections that customers previously didn't have across companies by default, according to CFPB director Rohit Chopra.

Related: Klarna Says Its AI Assistant Does the Work of 700 People

"When consumers check out and choose Buy Now, Pay Later, they don't know if they will get a refund if they return their product or whether the lender will help them if they didn't get what was promised," Chopra said, in a statement.

Rohit Chopra, director of the Consumer Financial Protection Bureau (CFPB). Photographer: Tierney L. Cross/Bloomberg via Getty Images

A 2022 market report from the CFPB showed that almost 14% of BNPL purchases from 2019 to 2021 at Affirm, Afterpay, Klarna, PayPal, and Zip (formerly Quadpay in the U.S.) involved returns or disputes.

The total dollar value of returns in 2021 at those five firms was $1.8 billion, per the report.

The regulations "make clear how the agency would apply longstanding law and regulation to this popular form of credit," Chopra stated.

Related: 'Buy Now Pay Later' Increasingly Popular Among High Earners

Affirm, a BNPL company that more than half of U.S. consumers recognize by name, already pauses payments when a customer opens a dispute and sends monthly statements, as do other BNPL lenders like Klarna.

A Klarna rep told Entrepreneur that CFPB's announcement "is a significant step forward in regulating BNPL, which Klarna has actively called for over many years." An Affirm company rep responded with an X thread from CEO Max Levchin, who wrote "clarity and a level playing field from CFPB = good for consumers & Affirm."

The global BNPL market was valued at over $250 billion in 2022.

Sherin Shibu

Entrepreneur Staff

News Reporter

Sherin Shibu is a business news reporter at Entrepreneur.com. She previously worked for PCMag, Business Insider, The Messenger, and ZDNET as a reporter and copyeditor. Her areas of coverage encompass tech, business, strategy, finance, and even space. She is a Columbia University graduate.

Want to be an Entrepreneur Leadership Network contributor? Apply now to join.

Editor's Pick

Business Solutions

Increase Productivity with This Microsoft 365 Subscription, Now $25 Off

It can make the entrepreneur life a lot easier.

Business News

Apple Pay Later Is Ending. Here's What's Taking Its Place.

The program was available for less than a year.

Leadership

This Artist Answered a Businessman's 'Powerful' Question — Then His Work Became 'the Poster Child for Juneteenth': 'Your Network Really Becomes Your Net Worth'

Reginald Adams was the executive director of a Houston-based art museum for more than a decade before he decided to launch his own public art and design firm.

Leadership

Harvard Business School Professor Says 65% of Startups Fail for One Reason. Here's How to Avoid It.

Team alignment isn't nice to have -- it's critical for running a successful business.

Business News

Here's What Companies Are Open and Closed on Juneteenth 2024

Since it became a holiday in 2021, Juneteenth has been recognized by some major corporations as a paid day off.

Growing a Business

I Hit $100 Million in Annual Revenue by Being More Transparent — Here Are the 3 Strategies That Helped Me Succeed

Three road-tested ways to be more transparent and build relationships that can transform your business — without leaving you feeling nightmarishly over-exposed.