The Consumer Financial Protection Bureau (CFPB) is poised to abandon its interpretive rule that would have subjected buy now, pay later (BNPL) “pay-in-four” lenders to the same regulatory framework as traditional credit cards.
This decision marks another significant rollback for the agency under its current leadership, following a rather tumultuous / unpredictable period under the Biden Administration of policy shifts and legal challenges.
Initially introduced to ensure consumer protections, the CFPB’s rule aimed to extend key rights to BNPL users, such as the ability to dispute charges and seek refunds directly from lenders for returned purchases made through these short-term, interest-free loans.
The regulation targeted the rapidly growing BNPL sector, exemplified by services offering four-installment payment plans, aligning their oversight with that of conventional credit cards.
However, the move sparked immediate backlash from industry players, culminating in a lawsuit filed by the Financial Technology Association (FTA) in October.
The FTA argued that the CFPB overstepped its authority and bypassed required rulemaking procedures, risking consumer confusion and imposing undue burdens on BNPL providers.
FTA CEO Penny Lee has criticized the rule, describing it as an unreasonable attempt to “fundamentally change” the regulatory landscape for these products, asserting that it exceeded the agency’s statutory mandate.
The legal pressure appears to have paid off, as a recent court filing reveals a joint motion by the CFPB and FTA to stay the case.
The filing notes that the CFPB “is planning to revoke the interpretative rule,” effectively rendering the litigation moot.
This reversal comes amid broader changes at the CFPB following President Donald Trump’s decision to oust Director Rohit Chopra shortly after taking office.
Under Acting Director Russell Vought, the agency has scaled back its enforcement efforts significantly.
In recent weeks, it has dropped lawsuits against major banks like JPMorgan Chase, Bank of America, and Wells Fargo over alleged fraud on the Zelle payment network, signaling a shift away from aggressive regulatory action.
The BNPL rule’s demise aligns with other efforts to curb the CFPB’s reach.
The U.S. Senate recently voted to overturn a separate rule that would have granted the agency oversight of tech giants—such as Apple, Google, and X—offering digital payment apps and wallets.
For now, the fast-growing BNPL sector appears to have dodged a major regulatory overhaul, leaving its pay-in-four model free from credit card-style obligations and applicable restrictions.
As the CFPB retreats from its earlier stance, the future of consumer protections in this fast-evolving Fintech and BNPL space still remains somewhat uncertain, with some industry advocates considering this latest development a win for innovation and flexibility.
