Implications of the new ‘buy now, pay later’ rule for small businesses providing the service

“Buy now, pay later” services have become a popular method for shoppers to pay for goods. These services are often advertised as zero-interest or low-interest payment plans that allow consumers to spread out payments over several weeks or months. For small businesses, offering these services can be a way to attract more customers, but there are also risks involved since these plans are typically offered by third-party companies like Affirm and Klarna.

One of the benefits of buy now, pay later programs is that they often allow consumers to select payment plans with no interest, such as the one offered by Chase. However, if something goes wrong with the payment plan, consumers might blame the small business even if they are not directly involved in the plan. Reports from the Consumer Financial Protection Bureau have shown that disputes and returns are common with these programs, costing small businesses money in fees that can add up over time.

In May, the CFPB issued a new rule that may ease the minds of small business owners. The rule states that buy now, pay later companies must provide consumers with the same legal rights and protections as credit card lenders. This means that consumers have the right to dispute charges, easily get refunds for returned items, receive billing statements, and other protections. Lenders are now required to investigate disputes, pause payment requirements during investigations, credit refunds to shoppers’ accounts, and send billing statements to consumers.

The CFPB began studying the buy now, pay later industry more than two years ago and discovered that many consumers were using these services as a substitute for traditional credit cards. The agency continues to receive complaints related to refunds and disputes, but it believes that the new rule will help bring consistency to the market. Small businesses should take note of these developments when considering offering buy now, pay later services to their customers.