We recently reported on recent steps taken by the Consumer Financial Protection Bureau (CFPB), which suggest increased US regulation of the Buy Now, Pay Later (BNPL) sector in the coming weeks and months. Shortly after the CFPB published its report on the industry, the Federal Trade Commission (FTC) issued a blog post that lists three principles that it suggests should guide the business practices of businesses offering BNPL payment options as a retailer or BNPL provider, as well as for those entities that play a role in the BNPL ecosystem as a marketer, collector, etc.:
- Claims, including claims about fees associated with BNPL products, must be true for the typical consumer. The FTC noted how misrepresentations regarding the cost of a product or the terms of the transaction, including associated fees, are deceptive and violate the FTC Act. The FTC has taken action against finance companies, retailers and others making advertising claims that are true only for a subset of people. For example, a company’s claim that its payment plan is “zero cost” may be deceptive if the typical customer will, in fact, incur fees. According to the FTC, companies making claims about BNPL and other payment plans “must ensure their claims are supported by reliable data.”
- Do not underestimate the importance of considering the transaction from a consumer’s perspective. The FTC emphasized that when designing and incorporating user interfaces that offer BNPL or other payment plans to consumers and using aggregate or individualized consumer data to do it, companies need to view the transaction through consumers’ eyes, including consumer understanding of the material terms of the transaction.
- The presence of multiple actors in the transaction, such as the retailer that sells the goods, does not shield a BNPL company from liability. When retailers and BNPL providers offer payment plans to consumers, both may be held liable when people are deceived or treated unfairly. For example, if a consumer returns a product through a BNPL plan, cancels the order, or has the order cancelled by a retailer and the consumer does not receive a timely refund, any company that made misleading claims about what would happen in those circumstances – as well as anyone involved in delaying refunds – could be liable under the FTC Act. According to the FTC, even if the consumer ultimately gets their money back, the time the consumer spent in the process counts as injury under the FTC Act, particularly if the consumer had to contact a company (or several companies) multiple times or wait weeks for the refund to arrive.
In short, the FTC issued a clear reminder that basic consumer protection ground rules of the FTC Act apply. Understanding when and if the BNPL arrangement falls within or outside of the scope of regulation is key. As BNPL products continue to grow in popularity and the industry continues to add products and services to meet consumer need, market participants should consider their business practices in light of the issues highlighted above (as well as the issues highlighted separately by the CFPB), assess the need to conduct a BNPL compliance check and be cognizant of the need to achieve compliance with the evolving regulatory regimes and develop structures to address regulatory risks.