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CFPB extends credit card protections to BNPL loans

Published 22/05/2024, 18:38
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WASHINGTON, D.C. - The Consumer Financial Protection Bureau (CFPB) has issued an interpretive rule classifying Buy Now, Pay Later (BNPL) lenders as credit card providers, a move that extends key legal protections to consumers using these services. As of today, BNPL lenders are now required to investigate disputes and process refunds similar to traditional credit card companies.

The CFPB's ruling ensures that consumers have the right to dispute charges and seek refunds from BNPL lenders after returning a product. This action aims to bring consistency to the market and protect consumers from billing disputes and issues with returned merchandise.

BNPL services have grown rapidly, offering consumers the ability to purchase items such as electronics and travel services over time without interest charges. The CFPB's research into the industry, which began in 2021, found that BNPL is often a close substitute for conventional credit cards.

Under the new rule, BNPL lenders must pause payment requirements during dispute investigations and issue credits when necessary. They are also required to provide periodic billing statements like those for traditional credit card accounts.

In 2021, disputes or returns involved more than 13% of BNPL transactions, totaling $1.8 billion at the five firms surveyed by the CFPB. The lack of dispute protections has led to confusion and frustration for consumers managing returns and billing issues.

The CFPB encourages public comments on the interpretive rule to further inform potential clarifications or guidance for the BNPL market. Comments will be accepted until August 1, 2024.

This regulatory step reflects the CFPB's ongoing efforts to ensure fair, transparent, and competitive markets for consumer financial products. The agency continues to monitor the rapidly changing BNPL market and its impact on consumers.

The interpretive rule is based on the Truth in Lending Act and is part of the CFPB's broader inquiry into the BNPL industry, focusing on debt accumulation, regulatory arbitrage, and data harvesting. The rule is informed by the agency's market report and consumer feedback.

InvestingPro Insights

As the Consumer Financial Protection Bureau (CFPB) tightens regulations around Buy Now, Pay Later (BNPL) services, companies such as PayPal (NASDAQ:PYPL), which offer BNPL options, may see an impact on their operations and financial metrics. With the new interpretive rule in place, it is crucial for investors to consider the latest financial data and expert analysis on PayPal to understand the potential implications.

InvestingPro data shows that PayPal has a market capitalization of $65.64 billion and is trading at a price-to-earnings (P/E) ratio of 15.74, which adjusts to 15.92 for the last twelve months as of Q1 2024. This P/E ratio is considered low relative to the company's near-term earnings growth, with a PEG ratio of 0.22 for the same period, indicating that the stock may be undervalued based on its growth rate.

Moreover, PayPal has demonstrated solid financial performance, with revenue growth of 8.39% for the last twelve months as of Q1 2024 and an operating income margin of 16.67%. These metrics suggest that the company has been managing its operations efficiently, even as it navigates a changing regulatory environment.

InvestingPro Tips for PayPal highlight that management has been actively repurchasing shares, a sign of confidence in the company's future prospects. Additionally, analysts predict that PayPal will remain profitable this year, which is supported by the company's profitability over the last twelve months. However, it is noteworthy that 26 analysts have revised their earnings forecasts downwards for the upcoming period, indicating potential challenges ahead.

For investors seeking a deeper analysis of PayPal and its position within the Financial Services industry, there are additional InvestingPro Tips available, offering insights into aspects such as dividend policies and analyst targets. To access these tips and enhance your investment strategy, visit https://www.investing.com/pro/PYPL and use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription. Currently, there are six more InvestingPro Tips listed for PayPal, providing a comprehensive view of the company's financial health and market position.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.

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