What the new ‘buy now, pay later’ rule means for small businesses offering the service

NEW YORK — “Buy now, pay later” services are a popular way that shoppers pay for goods.

The payment plan is usually marketed as zero-interest, or low interest, and allows consumers to spread out payments for purchases over several weeks or months.

Because shoppers like the service, offering it can be a plus for a small business. But since the payment plan is offered by third-party companies — such as Affirm and Klarna — there can be risks involved too.

If something goes wrong, consumers could blame the small business — even if they have nothing to do with the payment plan. And things can go wrong.

A report from the Consumer Financial Protection Bureau in 2022 found that more than 13% of BNPL transactions involved a disputed charge or a return. In 2021, consumers disputed or returned $1.8 billion in transactions at five large BNPL firms, the CFPB said.

The plans also cost small businesses money — typically a 1% to 3% fee, which can add up when margins are tight.

But the CFPB issued a new rule in May that may ease small business owners’ minds. The agency said the “buy now, pay later” companies must provide consumers with the same legal rights and protections as credit card lenders do.

That means consumers have legal protections including the rights to dispute charges, easily get a refund directly from the lender for a returned item and get billing statements.

Lenders now must investigate disputes brought to them by a consumer and pause payment requirements during the investigation.

If a shopper returns a product or cancels services, the lender must credit the refund to the shopper’s account. And buy now, pay later lenders will need to send billing statements to consumers like the ones sent by traditional credit card companies.

The CFPB started to study the industry more than two years ago and found many consumers used the service as a substitute for conventional credit cards when buying products.

It said in a news release that it continues to see consumer complaints related to refunds and disputed transactions, though the new rule “will help bring consistency to this market.”

Contributing: Sun-Times

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