How the CFPB Is Using Interpretive Rules to Expand Regulatory Requirements for Innovative Consumer Financial Products; Part One - Buy-Now, Pay-Later

Consumer Finance Monitor

Today’s podcast, which repurposes a recent webinar, is the first in a two-part examination of the CFPB’s use of an interpretive rule, rather than a legislative rule, to expand regulatory requirements for buy-now, pay-later (BNPL) products. Part Two, which will be available next week, will focus on the CFPB’s use of a proposed interpretive rule to expand regulatory requirements for earned wage access (EWA) products.

We open with an overview of what interpretive rules are and how they differ procedurally and substantively from legislative rules. The intended use of interpretive rules is to explain the meaning of an existing provision of law, while legislative rules, which require a more complicated and time-consuming procedure, including a notice and comment period under the Administrative Procedures Act, are intended to be used to expand or implement a provision of law. We also discuss why the CFPB chose to use an interpretive rule and why they decided to include a request for comments when that is not required for interpretive rules.

We then discuss BNPL products, including how they work and some of the features that have made them popular with consumers and merchants. We point out that the interpretive rule seems to represent a change in the views of the CFPB with regard to BNPL. After providing an overview of the CFPB’s history with the product, including a report issued by the Bureau back in 2022, we delve into the details of the CFPB’s interpretive rule. We discuss how the CFPB seems to be expanding the definition of a “credit card” to include what the Bureau calls a “digital user account,” which is how consumers access their BNPL information.

We conclude with thoughts about the implications of the CFPB’s interpretive rule and some of the difficulties that BNPL providers will have complying with the interpretive rule. This includes a discussion of the timing of billing statements and written notice requirements for billing error disputes and merchant disputes.

Alan Kaplinsky, former Practice Leader and Senior Counsel in Ballard Spahr’s Consumer Financial Services Group, moderates today’s episode, and is joined by John Culhane, Michael Guerrero, and Joseph Schuster, Partners in the Group. The webinar was recorded before the CFPB issued an FAQ, which purports to answer a number of open questions raised by the BNPL interpretive rule. We recommend that you review the FAQ after listening to this podcast.