Truth in Lending (Regulation Z); Use of Digital User Accounts To Access Buy Now, Pay Later Loans, 47068-47073 [2024-11800]
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Federal Register / Vol. 89, No. 106 / Friday, May 31, 2024 / Rules and Regulations
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■
[FR Doc. 2024–11825 Filed 5–30–24; 8:45 am]
CONSUMER FINANCIAL PROTECTION
BUREAU
12 CFR Part 1026
[Docket No. CFPB–2024–0017]
Truth in Lending (Regulation Z); Use of
Digital User Accounts To Access Buy
Now, Pay Later Loans
Consumer Financial Protection
Bureau.
ACTION: Interpretive rule; request for
comment.
AGENCY:
The Consumer Financial
Protection Bureau (CFPB) is issuing this
interpretive rule to address the
applicability of subpart B of Regulation
Z to lenders that issue digital user
accounts used to access credit,
including to those lenders that market
loans as ‘‘Buy Now, Pay Later’’ (BNPL).
This interpretive rule describes how
these lenders meet the criteria for being
‘‘card issuers’’ for purposes of
Regulation Z. Such lenders that extend
credit are also ‘‘creditors’’ subject to
subpart B of Regulation Z, including
those provisions governing periodic
statements and billing disputes. While
not required under the Administrative
Procedure Act, the CFPB is opting to
collect comments on this interpretive
rule and may make revisions as
appropriate after reviewing feedback
received.
DATES: This interpretive rule is
applicable as of July 30, 2024.
Comments must be received by August
1, 2024.
ADDRESSES: You may submit comments,
identified by Docket No. CFPB–2024–
0017, by any of the following methods:
• Federal eRulemaking Portal:
https://www.regulations.gov. Follow the
instructions for submitting comments.
• Email: 2024-BNPLInterpretiveRule@cfpb.gov. Include
Docket No. CFPB–2024–0017 in the
subject line of the message.
• Mail/Hand Delivery/Courier:
Comment Intake—2024 BNPL
SUMMARY:
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Federal Register / Vol. 89, No. 106 / Friday, May 31, 2024 / Rules and Regulations
Interpretive Rule, c/o Legal Division
Docket Manager, Consumer Financial
Protection Bureau, 1700 G Street NW,
Washington, DC 20552. Because paper
mail in the Washington, DC area and at
the CFPB is subject to delay,
commenters are encouraged to submit
comments electronically.
Instructions: The CFPB encourages
the early submission of comments. All
submissions must include the document
title and docket number. In general, all
comments received will be posted
without change to https://
www.regulations.gov. All submissions,
including attachments and other
supporting materials, will become part
of the public record and subject to
public disclosure. Proprietary
information or sensitive personal
information, such as account numbers
or Social Security numbers, or names of
other individuals, should not be
included. Submissions will not be
edited to remove any identifying or
contact information.
FOR FURTHER INFORMATION CONTACT:
George Karithanom, Regulatory
Implementation & Guidance Program
Analyst, Office of Regulations, at (202)
435–7700 or https://reginquiries.
consumerfinance.gov/. If you require
this document in an alternative
electronic format, please contact CFPB_
Accessibility@cfpb.gov.
SUPPLEMENTARY INFORMATION:
I. Interpretive Rule
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A. Executive Summary
Over the past three years, the CFPB
has extensively analyzed lenders
marketing their loans as ‘‘Buy Now, Pay
Later.’’ This includes a major study
published in 2022, insights from
supervisory examinations, and other
market monitoring and investigation.
Although market participants’ loan
offerings vary in this lending sector, the
CFPB is publishing this interpretive rule
to clarify existing obligations for market
participants with specific business
practices.
This interpretive rule’s legal analysis
states that lenders that issue digital user
accounts that consumers use from time
to time to access credit products to
purchase goods and services are ‘‘card
issuers’’ under Regulation Z, including
when those products are marketed as
Buy Now, Pay Later (BNPL). Such
lenders are ‘‘card issuers’’ because such
digital user accounts are ‘‘credit cards’’
under Regulation Z. Traditional BNPL
products are closed-end loans payable
in four or fewer installments without a
finance charge, used to make purchases
on credit. Consequently, BNPL loans are
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subject to some, but not all, of
Regulation Z’s credit card regulations.
Digital user accounts that consumers
use to access BNPL credit mimic
conventional credit cards. They meet
the regulatory definition of ‘‘credit
cards’’ as defined at 12 CFR
1026.2(a)(15)(i). Lenders that issue such
digital user accounts are ‘‘card issuers’’
as defined at 12 CFR 1026.2(a)(7) and
‘‘creditors’’ for purposes of subpart B of
Regulation Z, as defined at 12 CFR
1026.2(a)(17)(iii). However, traditional
BNPL products do not meet the
definition of ‘‘open-end credit’’ as
defined at 12 CFR 1026.2(a)(20) or of a
‘‘credit card account under an open-end
(not home-secured) consumer credit
plan’’ as defined at 12 CFR
1026.2(a)(15)(ii).
Accordingly, lenders that issue digital
user account to access BNPL credit are
subject to the regulations appearing in
subpart B of Regulation Z, including,
most importantly, provisions governing
credit card dispute and refund rights.
Although subpart B is labeled ‘‘OpenEnd Credit,’’ 12 CFR 1026.2(a)(17)(iii)
specifically states that subpart B also
applies to credit that is not open end if,
as with BNPL, the credit is not subject
to a finance charge and is not payable
by written agreement in more than four
installments. This is the case because
Congress expressly instructed the
Bureau to apply open-end credit
regulations to this form of credit that is
not open end. The Truth in Lending Act
(TILA) says that ‘‘the Bureau shall, by
regulation, apply [open-end credit]
requirements to [card issuers that
extend credit with no finance charge
that is payable in four or fewer
installments], to the extent appropriate,
even though the requirements [of the
open-end credit provisions] are by their
terms applicable only to creditors
offering open-end credit plans.’’ 1
Lenders that issue digital user
accounts to access BNPL credit are
generally not subject to the credit card
regulations appearing in subpart G of
Regulation Z (e.g., penalty fee limits and
ability-to-repay requirements).2
B. Background
Since the mid-2010s, a financing
method marketed as ‘‘Buy Now, Pay
Later’’ (BNPL) has rapidly gained
popularity as an alternative to
conventional credit cards in the United
States and abroad.3 While variations of
1 15
U.S.C. 1602(g).
G generally applies only to ‘‘credit card
account[s] under an open-end (not home-secured)
consumer credit plan.’’ However, 12 CFR 1026.60
in subpart G may apply.
3 See CFPB, Buy Now, Pay Later: Market trends
and consumer impacts, at 6 (Sept. 2022), https://
2 Subpart
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the product exist, for this interpretive
rule, BNPL refers to a consumer loan for
a retail transaction that is repaid in four
(or fewer) interest-free installments and
does not otherwise impose a finance
charge.4 The loan generally requires an
initial down payment of 25 percent,
followed by three additional
installments due every two weeks.
BNPL lenders currently acquire
customers primarily through two
channels: the merchant partner
acquisition model and the app-driven
acquisition model. In the merchant
partner acquisition model, BNPL
lenders typically establish contracts
with online merchants to offer their
BNPL product as a payment option on
the merchant’s website or mobile app
checkout page.5 The BNPL lenders
provide merchants with the necessary
digital code to integrate or embed access
to the BNPL product into the merchant
websites or mobile apps. Such digital
code or other integrations are referred to
in this interpretive rule as
‘‘integrations.’’
In the app-driven acquisition model,
which is less common but rapidly
expanding, consumers use the BNPL
lender’s own website or mobile app
directly to create a digital user account
to access the BNPL product.6 Once
activated by the provider, the consumer
can use their digital user account
through the BNPL website or mobile
app to access credit and make purchases
directly with partner merchants. For
non-partner merchants, the BNPL lender
enables the payment part of the credit
process by issuing a single-use virtual
card to the consumer, normally through
an issuer processor and a bank partner.
The consumer then typically has 24
hours to complete their purchase
directly with the merchant, using the
virtual card.7
In addition, BNPL lenders may issue
credit through other methods, such as
in-store or through browser extensions.8
These methods generally operate the
same as the acquisition methods
described above, allowing the consumer
files.consumerfinance.gov/f/documents/cfpb_buynow-pay-later-market-trends-consumer-impacts_
report_2022-09.pdf (Market Trends Report).
4 Other variations of BNPL include loans that, for
example, incur interest or other finance charges
(often referred to as point-of-sale loans). Depending
on their features, such loans might be subject to
other provisions of Regulation Z, including subparts
C or G.
5 See Market Trends Report at 12–13.
6 Id. at 14–15.
7 See, e.g., Klarna, What is a One-time card and
how does it work?, https://www.klarna.com/us/
customer-service/what-is-a-one-time-card-and-howdoes-it-work/ (last visited May. 14, 2024).
8 See, e.g., Affirm, Bring the power of Affirm to
your Browser, https://www.affirm.com/shopping/
browser-extension (last visited May 20, 2024).
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to access credit with their BNPL digital
user account to make purchases either
through the merchant’s website or
through the issuance of a single-use
virtual card.
Regardless of how consumers access
BNPL, a BNPL digital user account is
activated when a consumer first
accesses BNPL credit, similar to how a
virtual credit card number for a
traditional credit card account is issued
at the same time a consumer opens the
credit card account online and makes
their first purchase on the card. These
digital user accounts are secure,
personal profiles that the BNPL provider
activates for a consumer, enabling the
consumer to access and utilize BNPL
credit.9 Once a digital user account is
activated, the consumer can then
immediately use their BNPL digital user
account on an ongoing basis to access
credit to make additional purchases.
BNPL providers typically inform
consumers of their ‘‘amount available to
spend,’’ similar to a credit limit for
conventional credit cards, and offer a
frictionless borrowing process allowing
consumers to rapidly access the BNPL
credit.10
A significant and increasing number
of Americans who purchase goods and
services on credit do so with BNPL
credit instead of conventional credit
cards. According to a recent CFPB
Making Ends Meet survey, 17 percent of
consumers with a credit record made at
least one purchase using BNPL between
February 2021 and February 2022.11
And data from five leading BNPL
lenders reflect that originations have
increased from $2 billion in 2019 to
over $24 billion in 2021.12 BNPL
borrowers also increased their repeat
usage during this timeframe. The data
reveal that the average number of BNPL
loans taken out by BNPL consumers
from a single lender each quarter rose
from 1.9 to 2.8.13 The percentage of
BNPL borrowers with more than five
loans per quarter also increased, from
6.3 percent to 15.5 percent.14
9 A digital user account is distinct from the
concept of an account in TILA and Regulation Z.
10 BNPL providers typically do not guarantee the
‘‘amount available to spend’’ and each loan is
separately underwritten.
11 See CFPB, Consumer Use of Buy Now, Pay
Later: Insights from the CFPB Making Ends Meet
Survey, at 5 (Mar. 2023), https://files.consumer
finance.gov/f/documents/cfpb_consumer-use-ofbuy-now-pay-later_2023-03.pdf (MEM Survey
Report); see also Bd. of Governors of the Fed. Rsrv.
Sys., Economic Well-Being of Households in 2022,
at 46 (May 2023) (reporting 12 percent of adults in
U.S. households using BNPL in the prior 12
months, up from 10 percent in 2021).
12 Market Trends Report at 31.
13 Id.
14 Id. at 33–34.
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BNPL is popular among a broad range
of consumers, but certain groups have
shown a significantly higher likelihood
of using BNPL. These groups include
Black, Hispanic, and female consumers,
as well as consumers with an annual
household income between $20,001–
$50,000 and consumers under the age of
35.15 In comparison to non-BNPL
borrowers, BNPL borrowers tend to have
higher levels of debt, carry balances on
their conventional credit cards, have
delinquencies on traditional credit
products, and make use of higher-cost
financial services like payday loans,
pawn, and overdraft.16 BNPL borrowers
are also more likely to use other credit
products like conventional credit cards,
personal loans, and student loans, but
have less liquidity and savings
compared to non-BNPL borrowers.17
Consumers often use BNPL offerings
as an alternative to conventional credit
cards, and the two share many
similarities. Both combine payment
processing and credit services. Both
charge transaction fees to merchants and
are extensively used for retail
transactions.18 And consumers often use
these two payment methods in a similar
manner. In fact, often when a consumer
is making purchases online from a
merchant’s website, the only options for
paying on credit consist of conventional
credit cards and BNPL, which are
presented next to each other as
alternatives.
The CFPB has been closely
monitoring the BNPL market by issuing
reports based on collected BNPL data
and supervising certain BNPL lenders.
In December 2021, the CFPB issued
mandatory data collection orders to five
large BNPL lenders to understand
market trends and practices. These
responses formed the basis of the
September 2022 report ‘‘Buy Now Pay
Later: Market Trends and Consumer
Impacts,’’ which highlighted industry
growth, as well as consumer benefits
and risks associated with BNPL loans.19
The report noted, among other findings,
a lack of standardized disclosures and
challenges in resolving disputes.20 In
March 2023, the CFPB published
‘‘Consumer Use of Buy Now, Pay Later,’’
which used data from the annual
Making Ends Meet survey and credit
bureaus to identify demographic and
other characteristics of BNPL
borrowers.21 In March 2024, the CFPB
15 MEM
Survey Report at 22.
16 Id.
17 Id.
18 Id.
at 6.
Market Trends Report.
20 See id. at 72–73.
21 See MEM Survey Report.
19 See
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released its ‘‘Consumer Response
Annual Report’’ for 2023, which noted
issues consumers faced with merchants
regarding BNPL, such as non-receipt of
items and challenges in canceling
loans.22 Through monitoring consumer
complaints, the CFPB has further
refined its understanding of the BNPL
market. The CFPB continues to observe
the industry and monitor new market
and product trends.
Recognizing the importance of
adequate consumer protections for
BNPL loans, the CFPB is issuing this
interpretive rule so that BNPL providers
understand their obligations. As this
interpretive rule explains, lenders that
issue BNPL digital user accounts are
‘‘card issuers’’ under Regulation Z
because the digital user accounts they
issue constitute ‘‘credit cards’’ under
Regulation Z. The term ‘‘credit card’’—
which, as defined by TILA and
Regulation Z, includes the term ‘‘other
credit device’’ or ‘‘other single credit
device’’ used for the purpose of
obtaining credit—encompasses digital
user accounts that consumers can use
through websites, mobile apps, browser
extensions, or integrations with
merchant websites or mobile apps to
access BNPL credit for the purchase of
goods and services. The CFPB also
affirms through this interpretive rule
that BNPL lenders that extend credit—
even though that credit is not subject to
a finance charge and is not payable by
written agreement in more than four
installments—are creditors subject to
subpart B of Regulation Z, including
those provisions governing cost of credit
disclosures and billing disputes.
C. Legal Analysis
This interpretive rule discusses the
application of subpart B of Regulation Z
to lenders that issue digital user
accounts that consumers use from time
to time to access credit, which includes
those lenders that market their loans as
‘‘Buy Now, Pay Later.’’ Regulation Z 23
implements the Truth in Lending Act
(TILA).24 The purpose of TILA is to
‘‘assure a meaningful disclosure of
credit terms so that the consumer will
be able to compare more readily the
various credit terms available to him
and avoid the uninformed use of credit,
and to protect the consumer against
inaccurate and unfair credit billing and
credit card practices.’’ 25 Accordingly,
TILA and its implementing regulation
22 See CFPB, Consumer Response Annual Report,
at 64 (Mar. 2024), https://files.consumer
finance.gov/f/documents/cfpb_cr-annual-report_
2023-03.pdf.
23 12 CFR 1026.
24 15 U.S.C. 1601 et seq.
25 Id. at 1601(a).
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generally establish uniform methods for
calculating the cost of credit, require
meaningful disclosure of those costs to
consumers, and provide standardized
mechanisms for resolving credit billing
disputes.26
Although subpart B primarily covers
open-end credit, many of its provisions
apply more broadly, including to
closed-end credit, under certain
circumstances.27 Certain subpart B
provisions, such as those governing
cardholder liability, apply to any ‘‘card
issuer,’’ regardless of the type of credit
offered.28 Regulation Z defines ‘‘card
issuer’’ as ‘‘a person that issues a credit
card or that person’s agent with respect
to the card.’’ 29 Additionally, ‘‘card
issuers’’ are considered ‘‘creditors’’ for
purposes of subpart B if they also
extend ‘‘either open-end credit or credit
that is not subject to a finance charge
and is not payable by written agreement
in more than four installments.’’ 30 Such
‘‘creditors’’ are broadly subject to the
provisions of subpart B, including those
governing disclosures and billing
dispute resolution.31 Thus, BNPL
lenders that issue a credit card as
defined by Regulation Z are card issuers
for purposes of the regulation. And as
they also extend credit, even though
that credit is not subject to a finance
charge and not payable by written
agreement in more than four
installments, those BNPL lenders are
creditors subject to the provisions of
subpart B.
The definition of ‘‘credit card’’ in
TILA and Regulation Z is not limited to
26 Regulation Z defines credit broadly as the right
to defer payment of debt or to incur debt and defer
its payment. BNPL credit meets this definition.
27 This can include BNPL credit, which for
purposes of this interpretive rule is defined as a
closed-end consumer loan for a retail transaction
that is repaid in four (or fewer) interest-free
installments and does not otherwise impose a
finance charge. See also 12 CFR 1026.2(a)(17)(iii)–
(iv). To the extent that subpart B applies to
business-purpose credit cards, this would also
include business-purpose BNPL credit. See 12 CFR
1026.12(a)–(b).
28 See 12 CFR 1026.12, which covers
unauthorized issuance and liability for
unauthorized use. Other provisions of Regulation Z
may also apply to ‘‘card issuers’’ regardless of the
type of credit. See 12 CFR 1026.60, in subpart G,
which outlines the rules for credit and charge card
applications and solicitations.
29 12 CFR 1026.2(a)(7). Where a BNPL provider
partners with another party to extend credit,
including a bank, depending on the facts and
circumstances both entities may be ‘‘card issuers.’’
30 See 12 CFR 1026.2(a)(17)(iii) (one of several
independent tests by which an entity can qualify as
a ‘‘creditor’’ under 12 CFR 1026.2(a)(17)). Of course,
were a BNPL provider to charge a finance charge,
or allow repayment in more than four installments,
they would meet one or more of the other
independent tests for qualifying as a ‘‘creditor.’’
31 Subpart B includes 12 CFR 1026.6 through .9,
which cover disclosures, and 12 CFR 1026.13,
which covers billing error resolution.
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a plastic or metal embossed physical
card. While the term certainly includes
those, it also includes archaic forms of
credit devices like plates and coupon
books, and non-physical credit devices
like account numbers, including virtual
credit cards where the account number
itself is the ‘‘credit card.’’ In creating
these definitions, Congress understood
the need for flexibility to cover evolving
types of credit devices, reflecting the
rapid advancement of credit
mechanisms at the time of enactment.
TILA defines ‘‘credit card’’ as ‘‘any card,
plate, coupon book or other credit
device existing for the purpose of
obtaining money, property, labor, or
services on credit.’’ 32 Regulation Z
similarly defines ‘‘credit card’’ as ‘‘any
card, plate, or other single credit device
that may be used from time to time to
obtain credit.’’ 33
The CFPB interprets the terms ‘‘other
credit device’’ and ‘‘other single credit
device’’ found within the TILA and
Regulation Z definitions of credit card
to include a BNPL digital user account
that a consumer can use through
websites, mobile apps, browser
extensions, or integrations with
merchant websites or mobile apps to
access BNPL credit, to the extent the
user account is used to draw, transfer,
or authorize the draw or transfer of
credit in the course of authorizing,
settling, or otherwise completing
transactions to obtain goods or
services.34 The broad catch-all terms
‘‘other credit device’’ and ‘‘other single
credit device’’ are not defined by TILA
and Regulation Z.35 However, this
interpretation is consistent with the
ordinary meaning and historical context
of the words.
The CFPB’s interpretation flows from
the ordinary meaning of the word
‘‘device.’’ Merriam-Webster Dictionary
contains several definitions for the word
‘‘device,’’ including ‘‘something devised
or contrived: such as . . . [a] plan,
procedure, [or] technique . . . [or] a
piece of equipment or a mechanism
designed to serve a special purpose or
perform a special function.’’ 36
32 15
U.S.C. 1602(l).
CFR 1026.2(a)(15)(i). The term is also
defined to include ‘‘a hybrid prepaid-credit card as
defined in § 1026.61.’’
34 A BNPL integration includes, for example, a
BNPL lender’s code or process embedded in the
checkout flow of a merchant website or mobile app
that allows a consumer to access a digital user
account to obtain BNPL credit.
35 In addition, there is no well-understood
definition of ‘‘other credit device’’ or ‘‘other single
credit device’’ under State law.
36 Device, Merriam-Webster Dictionary, https://
www.merriam-webster.com/dictionary/device (last
visited May 20, 2024). See also, e.g., James v. State,
113 P. 226, 228 (Okla. Crim. App. 1910) (‘‘Mr.
33 12
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47071
Similarly, Oxford English Dictionary
defines ‘‘device’’ in part to mean ‘‘[t]he
result of contriving; something devised
or framed by art or inventive power; an
invention, contrivance; esp. a
mechanical contrivance (usually of a
simple character) for some particular
purpose.’’ 37 These definitions indicate
that the ordinary meaning of ‘‘device’’ is
broad and incorporates a wide range of
mechanisms, tools, or procedures
specifically designed or contrived to
achieve a particular purpose.
The CFPB’s interpretation is also
consistent with use of the word
‘‘device’’ broadly in other contexts. For
example, both the CFPB, and the
Federal Reserve Board (Board) before it,
have interpreted ‘‘access device’’ in
Regulation E to include such nonphysical devices as personal
identification numbers (PINs),
telephone transfer and bill payment
codes, and other means that may be
used by a consumer to initiate an
electronic fund transfer.38
The CFPB’s interpretation is also
consistent with Congress’ intent to
define the terms ‘‘other credit device’’
and ‘‘credit card’’ broadly. As a
preliminary matter, courts have
routinely held that, as a remedial
statute, TILA should be interpreted
expansively in favor of the consumer.39
More specifically, as courts have
recognized, the inclusion of the phrase
‘‘other credit device’’ in the statutory
definition of ‘‘credit card’’ indicates that
Congress intended the term ‘‘credit
card’’ to encompass a wider scope than
its customary usage.40 Congress initially
enacted the definitions in 1970 at the
height of a rapid evolution of credit
devices, which first included nowarchaic credit devices such as coins and
plates before the use of conventional
Webster defines a ‘device’ as follows: ‘That which
is devised, or formed by conception, a contrivance,
and invention, a project, a scheme, often a scheme
to deceive, a stratagem, an artifice.’ ’’).
37 Device, Oxford English Dictionary, https://
doi.org/10.1093/OED/1300217116 (last visited May
20, 2024).
38 See sec. 1005.2(a)(1); see also Regulation E,
comment 2(a)(1)–1.
39 Begala v. PNC Bank, Ohio, Nat. Ass’n, 163 F.3d
948, 950 (6th Cir. 1998), as amended (Mar. 26,
1999); Rossman v. Fleet Bank (R.I.) Nat. Ass’n, 280
F.3d 384, 390 (3d Cir. 2002).
40 See, e.g., United States v. Bice-Bey, 701 F.2d
1086, 1092 (4th Cir. 1983) (holding that credit card
numbers, not just the credit cards themselves, can
be a ‘‘credit device’’ for purposes of TILA); Telco
Commc’ns Grp., Inc. v. Race Rock of Orlando,
L.L.C., 57 F. Supp. 2d 340, 343 (E.D. Va. 1999)
(holding that telephone calling cards can be credit
cards); Munoz v. Seventh Ave., Inc., No. 04 C 2219,
2004 WL 1593906, at *4 (N.D. Ill. July 15, 2004)
(‘‘Section 1602(k) contains a broad definition of
‘credit card’ which encompasses items that are not
within the common understanding of the term
credit card, such as a ‘coupon book’ or ‘other credit
device.’ ’’).
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Federal Register / Vol. 89, No. 106 / Friday, May 31, 2024 / Rules and Regulations
credit cards became widespread.41 In
this context, Congress appears to have
intended a flexible and comprehensive
definition of ‘‘credit card’’ that could
encompass both the entire range of
existing credit devices and also those
‘‘other credit devices’’ that might not yet
exist.
Indeed, the Board, which previously
had jurisdiction over Regulation Z,
adopted a similarly broad interpretation
of ‘‘other single credit device’’ in 2010.
The Board clarified in Official Staff
Interpretations of Regulation Z that nonphysical devices—in that case, account
numbers—could be considered ‘‘credit
cards’’ under the definition.42 The
Board explained in the rulemaking
preamble that while Congress did not
generally intend to treat all account
numbers as credit cards—for example,
where credit is transferred into a
consumer’s asset account—it would be
inconsistent with Congressional intent
not to do so when the account number
could be used to access credit for the
purchase of goods and services.43 As an
example, the Board provided a
hypothetical scenario in which an openend credit account was designed for
online purchases, functioning like a
conventional credit card account, but
only accessible with an account
number.44 In such circumstances, the
Board stated, it believed that TILA’s
credit card protections should apply.45
This analysis applies equally in the
BNPL context. BNPL is a product
primarily designed for the online
purchase of goods and services and a
digital BNPL user account functions like
a conventional credit card. Consumers
can use their BNPL digital user accounts
through BNPL websites, mobile apps,
browser extensions, or integrations with
merchant websites or mobile apps to
access credit for purchases. Given its
similarities to conventional credit cards,
a consumer’s BNPL digital user account
is among the types of ‘‘credit devices’’
that Congress would have had in mind
in enacting TILA.
In order for a device to constitute a
credit card under Regulation Z, it must
be usable from time to time to obtain
credit.46 The commentary to Regulation
Z interprets the term ‘‘time to time’’ to
‘‘involve[ ] the possibility of repeated
use of a single device.’’ 47 The CFPB
interprets the phrase ‘‘usable from time
to time’’ to cover a consumer’s BNPL
digital user account that is issued as
part of a business model designed for
repeat use that can be used through
websites, mobile apps, browser
extensions, or integrations with
merchant websites or mobile apps, to
access credit for the purchase of goods
and services.48 Like conventional credit
cards, the BNPL business model is
designed around the repeat use of a
digital user account to make real-time
purchases on credit.49 The CFPB
therefore interprets the term ‘‘credit
cards’’ to include such digital credit
devices for purposes of TILA and
Regulation Z.
Of course, not all digital user accounts
are credit cards. However, digital user
accounts with the purpose of giving
consumers access to credit from time to
time in the course of completing
transactions to purchase goods or
services, including those marketed as
BNPL, meet the regulatory definition of
‘‘credit card.’’ When consumers use
them through websites, mobile apps,
browser extensions, and integrations,
they get credit in the course of
completing transactions to pay for a
product at check-out or even in physical
stores.50 And these digital user accounts
‘‘exist for [that] purpose.’’ 51 They are,
effectively, digital replacements for
conventional credit cards, and
consumers use them in the same way as
conventional credit cards. The statutory
and regulatory definitions of ‘‘credit
card’’ are broad enough to capture new,
technologically advanced ‘‘devices’’
designed to mimic the core features of
conventional credit cards.
Consequently, BNPL providers
issuing the credit cards (and their agents
with respect to the credit card) are ‘‘card
issuers’’ for purposes of Regulation Z.
Additionally, as noted above, a ‘‘card
46 See
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41 See
John R. Webster & William F. Davis III.,
Bank Credit Plans: Innovations in Consumer
Financing, 1 Loy. L. A. L. Rev. 49 (1968); see also
113 Cong. Rec. 28765 (1967) (member of
Congressional Committee on Banking and Currency
referring to credit cards as ‘‘the new credit device’’).
42 See Regulation Z, comment 2(a)(15)–2.ii.C. An
‘‘account number’’ contemplated by the Board’s
interpretation is distinct from a BNPL digital user
account.
43 See 76 FR 22948 (Apr. 25, 2011). In that
rulemaking, the Board was only considering openend credit, but the CFPB believes that the logic
applies similarly to closed-end credit.
44 Id.
45 Id.
VerDate Sep<11>2014
16:00 May 30, 2024
Jkt 262001
sec. 1026.2(a)(15)(i).
Regulation Z, comment 2(a)(15)–1.
48 The existence of a limit on the number of BNPL
loans a consumer can have at one time or the
issuance of a single-use virtual card as part of the
credit extension and payment process would not
preclude the credit device from satisfying the ‘‘time
to time’’ requirement.
49 This is the case regardless of whether the
customer is acquired through the merchant partner
acquisition model or the app-driven acquisition
model, and regardless of whether the consumer
uses the credit device more than one time.
50 The fact that sometimes BNPL loans are
declined does not change this fact. The same can
be said about conventional credit cards.
51 15 U.S.C. 1602(l).
47 See
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Frm 00006
Fmt 4700
Sfmt 4700
issuer’’ is a ‘‘creditor’’ for purposes of
subpart B if it extends credit, even
though that credit is not subject to a
finance charge and not payable by
written agreement in more than four
installments. Thus, BNPL lenders that
issue credit cards are ‘‘creditors’’ for
purposes of subpart B and must comply
with its requirements, including the
provisions related to disclosures and
billing dispute resolution.
II. Regulatory Matters
This is an interpretive rule issued
under the Bureau’s authority to interpret
TILA and Regulation Z, including under
section 1022(b)(1) of the Consumer
Financial Protection Act of 2010, which
authorizes guidance as may be
necessary or appropriate to enable the
CFPB to administer and carry out the
purposes and objectives of Federal
consumer financial laws.52 While not
required under the APA, the CFPB is
collecting comments and may make
revisions to the interpretive rule at a
later time as appropriate in light of
feedback received. The CFPB may take
no further action if no revisions are
warranted.
By operation of TILA section 130(f),
no provision of TILA sections 130,
108(b), 108(c), 108(e), or section 112
imposing any liability applies to any act
done or omitted in good faith in
conformity with this interpretive rule,
notwithstanding that after such act or
omission has occurred, the interpretive
rule is amended, rescinded, or
determined by judicial or other
authority to be invalid for any reason.53
The CFPB has determined that this
interpretive rule does not impose any
new or revise any existing
recordkeeping, reporting, or disclosure
requirements on covered entities or
members of the public that would be
collections of information requiring
approval by the Office of Management
and Budget under the Paperwork
Reduction Act.54
Pursuant to the Congressional Review
Act,55 the Bureau will submit a report
containing this interpretive rule and
other required information to the United
States Senate, the United States House
of Representatives, and the Comptroller
General of the United States prior to the
rule’s published effective date. The
Office of Information and Regulatory
Affairs has designated this interpretive
52 12
U.S.C. 5512(b)(1).
U.S.C. 1640(f).
54 44 U.S.C. 3501–3521.
55 5 U.S.C. 801 et seq.
53 15
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Federal Register / Vol. 89, No. 106 / Friday, May 31, 2024 / Rules and Regulations
rule as a ‘‘major rule’’ as defined by 5
U.S.C. 804(2).
Rohit Chopra,
Director, Consumer Financial Protection
Bureau.
[FR Doc. 2024–11800 Filed 5–30–24; 8:45 am]
BILLING CODE 4810–AM–P
DEPARTMENT OF TRANSPORTATION
Federal Aviation Administration
14 CFR Part 21
[Docket No. FAA–2022–1548]
Airworthiness Criteria: Special Class
Airworthiness Criteria for the Archer
Aviation, Inc. Model M001 Powered-Lift
Correction
In rule document 2024–11192,
beginning on page 45944, make the
following correction: On page 45976, in
the second column, on the fifteenth line
from the bottom of the page, the heading
‘‘AM1.281 Propeller Critical Parts’’
should read ‘‘AM1.2816 Propeller
Critical Parts’’.
[FR Doc. C1–2024–11192 Filed 5–30–24; 8:45 am]
BILLING CODE 0099–10–D
DEPARTMENT OF TRANSPORTATION
Federal Aviation Administration
14 CFR Part 71
[Docket No. FAA–2023–1758; Airspace
Docket No. 23–AWP–44]
RIN 2120–AA66
Modification of Class E Airspace;
Mammoth Lakes Airport, Mammoth
Lakes, CA
Federal Aviation
Administration (FAA), DOT.
ACTION: Final rule.
AGENCY:
This action modifies the Class
E airspace designated as surface area,
modifies the Class E airspace extending
upward from 700 feet above the surface,
and removes the Class E airspace
extending upward from 1,200 feet above
the surface at Mammoth Yosemite
Airport, Mammoth Lakes, CA.
Additionally, this action updates the
administrative portion of the airport’s
Class E airspace legal descriptions.
These actions support the safety and
management of instrument flight rules
(IFR) operations at the airport.
DATES: Effective date 0901 UTC,
September 5, 2024. The Director of the
Federal Register approves this
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SUMMARY:
VerDate Sep<11>2014
16:00 May 30, 2024
Jkt 262001
incorporation by reference action under
1 CFR part 51, subject to the annual
revision of FAA Order JO 7400.11 and
publication of conforming amendments.
ADDRESSES: A copy of the Notice of
Proposed Rulemaking (NPRM), all
comments received, this final rule, and
all background material may be viewed
online at www.regulations.gov using the
FAA Docket number. Electronic
retrieval help and guidelines are
available on the website. It is available
24 hours each day, 365 days each year.
FAA Order JO 7400.11H, Airspace
Designations and Reporting Points, and
subsequent amendments can be viewed
online at www.faa.gov/air_traffic/
publications/. You may also contact the
Rules and Regulations Group, Office of
Policy, Federal Aviation
Administration, 800 Independence
Avenue SW, Washington, DC 20591;
telephone: (202) 267–8783.
FOR FURTHER INFORMATION CONTACT:
Jeffrey Drasin, Federal Aviation
Administration, Western Service Center,
Operations Support Group, 2200 S
216th Street, Des Moines, WA 98198;
telephone (206) 231–2248.
SUPPLEMENTARY INFORMATION:
Authority for This Rulemaking
The FAA’s authority to issue rules
regarding aviation safety is found in
Title 49 of the United States Code.
Subtitle I, Section 106, describes the
authority of the FAA Administrator.
Subtitle VII, Aviation Programs,
describes in more detail the scope of the
agency’s authority. This rulemaking is
promulgated under the authority
described in Subtitle VII, Part A,
Subpart I, Section 40103. Under that
section, the FAA is charged with
prescribing regulations to assign the use
of the airspace necessary to ensure the
safety of aircraft and the efficient use of
airspace. This regulation is within the
scope of that authority as it modifies
and removes Class E airspace to support
IFR operations at Mammoth Yosemite
Airport, Mammoth Lakes, CA.
History
The FAA published a notice of
proposed rulemaking for Docket No.
FAA–2023–1758 in the Federal Register
(88 FR 88546; December 22, 2023) for
the removal and modification of Class E
airspace at Mammoth Yosemite Airport,
Mammoth Lakes, CA. Interested parties
were invited to participate in this
rulemaking effort by submitting written
comments on the proposal to the FAA.
No comments were received.
Differences From the NPRM
The legal description of the Class E
airspace designated as a surface area
PO 00000
Frm 00007
Fmt 4700
Sfmt 4700
47073
within the NPRM included the
following language: ‘‘This Class E
airspace area is effective during the
specific dates and times established in
advance by a Notice to Air Missions.
The effective date and time will
thereafter be continuously published in
the Chart Supplement.’’ The FAA
subsequently determined that the Class
E airspace at Mammoth Yosemite
Airport is effective 24 hours a day.
Accordingly, the final rule does not
include this language.
Incorporation by Reference
Class E2 and E5 airspace area
designations are published in
paragraphs 6002 and 6005, respectively,
of FAA Order JO 7400.11, Airspace
Designations and Reporting Points,
which is incorporated by reference in 14
CFR 71.1 on an annual basis. This
document amends the current version of
that order, FAA Order JO 7400.11H,
dated August 11, 2023, and effective
September 15, 2023. FAA Order JO
7400.11H is publicly available as listed
in the ADDRESSES section of this
document. These amendments will be
published in the next update to FAA
Order JO 7400.11.
FAA Order JO 7400.11H lists Class A,
B, C, D, and E airspace areas, air traffic
service routes, and reporting points.
The Rule
This action amends 14 CFR part 71 by
modifying the Class E airspace
designated as surface area, modifying
the Class E airspace extending upward
from 700 feet above the surface, and
removing the Class E airspace extending
upward from 1,200 feet above the
surface at Mammoth Yosemite Airport,
Mammoth Lakes, CA.
The Class E surface area extension
east of the airport centered on the 099°
bearing is recentered to the airport’s
096° bearing. Additionally, the width is
reduced from 1.8 miles to 1 mile either
side of the bearing, and the extension
length is reduced from 5.6 miles to 4.6
miles east of the airport. This will better
contain arriving IFR operations between
the surface and 1,000 feet above the
surface while executing the Area
Navigation (RNAV) (Global Positioning
System [GPS]) Runway (RWY) 27
approach.
The Class E airspace extending
upward from 700 feet above the surface
at the airport is extended eastward to
include that airspace within 2.6 miles
either side of the airport’s 091° bearing
extending from the 6.6-mile radius to
13.1 miles east of the airport. This will
contain arriving IFR operations below
1,500 feet above the surface while
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]]>Agencies
- CONSUMER FINANCIAL PROTECTION BUREAU
[Federal Register Volume 89, Number 106 (Friday, May 31, 2024)]
[Rules and Regulations]
[Pages 47068-47073]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-11800]
=======================================================================
-----------------------------------------------------------------------
CONSUMER FINANCIAL PROTECTION BUREAU
12 CFR Part 1026
[Docket No. CFPB-2024-0017]
Truth in Lending (Regulation Z); Use of Digital User Accounts To
Access Buy Now, Pay Later Loans
AGENCY: Consumer Financial Protection Bureau.
ACTION: Interpretive rule; request for comment.
-----------------------------------------------------------------------
SUMMARY: The Consumer Financial Protection Bureau (CFPB) is issuing
this interpretive rule to address the applicability of subpart B of
Regulation Z to lenders that issue digital user accounts used to access
credit, including to those lenders that market loans as ``Buy Now, Pay
Later'' (BNPL). This interpretive rule describes how these lenders meet
the criteria for being ``card issuers'' for purposes of Regulation Z.
Such lenders that extend credit are also ``creditors'' subject to
subpart B of Regulation Z, including those provisions governing
periodic statements and billing disputes. While not required under the
Administrative Procedure Act, the CFPB is opting to collect comments on
this interpretive rule and may make revisions as appropriate after
reviewing feedback received.
DATES: This interpretive rule is applicable as of July 30, 2024.
Comments must be received by August 1, 2024.
ADDRESSES: You may submit comments, identified by Docket No. CFPB-2024-
0017, by any of the following methods:
Federal eRulemaking Portal: https://www.regulations.gov.
Follow the instructions for submitting comments.
Email: [email protected]. Include Docket
No. CFPB-2024-0017 in the subject line of the message.
Mail/Hand Delivery/Courier: Comment Intake--2024 BNPL
[[Page 47069]]
Interpretive Rule, c/o Legal Division Docket Manager, Consumer
Financial Protection Bureau, 1700 G Street NW, Washington, DC 20552.
Because paper mail in the Washington, DC area and at the CFPB is
subject to delay, commenters are encouraged to submit comments
electronically.
Instructions: The CFPB encourages the early submission of comments.
All submissions must include the document title and docket number. In
general, all comments received will be posted without change to https://www.regulations.gov. All submissions, including attachments and other
supporting materials, will become part of the public record and subject
to public disclosure. Proprietary information or sensitive personal
information, such as account numbers or Social Security numbers, or
names of other individuals, should not be included. Submissions will
not be edited to remove any identifying or contact information.
FOR FURTHER INFORMATION CONTACT: George Karithanom, Regulatory
Implementation & Guidance Program Analyst, Office of Regulations, at
(202) 435-7700 or https://reginquiries.consumerfinance.gov/. If you
require this document in an alternative electronic format, please
contact [email protected].
SUPPLEMENTARY INFORMATION:
I. Interpretive Rule
A. Executive Summary
Over the past three years, the CFPB has extensively analyzed
lenders marketing their loans as ``Buy Now, Pay Later.'' This includes
a major study published in 2022, insights from supervisory
examinations, and other market monitoring and investigation. Although
market participants' loan offerings vary in this lending sector, the
CFPB is publishing this interpretive rule to clarify existing
obligations for market participants with specific business practices.
This interpretive rule's legal analysis states that lenders that
issue digital user accounts that consumers use from time to time to
access credit products to purchase goods and services are ``card
issuers'' under Regulation Z, including when those products are
marketed as Buy Now, Pay Later (BNPL). Such lenders are ``card
issuers'' because such digital user accounts are ``credit cards'' under
Regulation Z. Traditional BNPL products are closed-end loans payable in
four or fewer installments without a finance charge, used to make
purchases on credit. Consequently, BNPL loans are subject to some, but
not all, of Regulation Z's credit card regulations.
Digital user accounts that consumers use to access BNPL credit
mimic conventional credit cards. They meet the regulatory definition of
``credit cards'' as defined at 12 CFR 1026.2(a)(15)(i). Lenders that
issue such digital user accounts are ``card issuers'' as defined at 12
CFR 1026.2(a)(7) and ``creditors'' for purposes of subpart B of
Regulation Z, as defined at 12 CFR 1026.2(a)(17)(iii). However,
traditional BNPL products do not meet the definition of ``open-end
credit'' as defined at 12 CFR 1026.2(a)(20) or of a ``credit card
account under an open-end (not home-secured) consumer credit plan'' as
defined at 12 CFR 1026.2(a)(15)(ii).
Accordingly, lenders that issue digital user account to access BNPL
credit are subject to the regulations appearing in subpart B of
Regulation Z, including, most importantly, provisions governing credit
card dispute and refund rights. Although subpart B is labeled ``Open-
End Credit,'' 12 CFR 1026.2(a)(17)(iii) specifically states that
subpart B also applies to credit that is not open end if, as with BNPL,
the credit is not subject to a finance charge and is not payable by
written agreement in more than four installments. This is the case
because Congress expressly instructed the Bureau to apply open-end
credit regulations to this form of credit that is not open end. The
Truth in Lending Act (TILA) says that ``the Bureau shall, by
regulation, apply [open-end credit] requirements to [card issuers that
extend credit with no finance charge that is payable in four or fewer
installments], to the extent appropriate, even though the requirements
[of the open-end credit provisions] are by their terms applicable only
to creditors offering open-end credit plans.'' \1\
---------------------------------------------------------------------------
\1\ 15 U.S.C. 1602(g).
---------------------------------------------------------------------------
Lenders that issue digital user accounts to access BNPL credit are
generally not subject to the credit card regulations appearing in
subpart G of Regulation Z (e.g., penalty fee limits and ability-to-
repay requirements).\2\
---------------------------------------------------------------------------
\2\ Subpart G generally applies only to ``credit card account[s]
under an open-end (not home-secured) consumer credit plan.''
However, 12 CFR 1026.60 in subpart G may apply.
---------------------------------------------------------------------------
B. Background
Since the mid-2010s, a financing method marketed as ``Buy Now, Pay
Later'' (BNPL) has rapidly gained popularity as an alternative to
conventional credit cards in the United States and abroad.\3\ While
variations of the product exist, for this interpretive rule, BNPL
refers to a consumer loan for a retail transaction that is repaid in
four (or fewer) interest-free installments and does not otherwise
impose a finance charge.\4\ The loan generally requires an initial down
payment of 25 percent, followed by three additional installments due
every two weeks.
---------------------------------------------------------------------------
\3\ See CFPB, Buy Now, Pay Later: Market trends and consumer
impacts, at 6 (Sept. 2022), https://files.consumerfinance.gov/f/documents/cfpb_buy-now-pay-later-market-trends-consumer-impacts_report_2022-09.pdf (Market Trends Report).
\4\ Other variations of BNPL include loans that, for example,
incur interest or other finance charges (often referred to as point-
of-sale loans). Depending on their features, such loans might be
subject to other provisions of Regulation Z, including subparts C or
G.
---------------------------------------------------------------------------
BNPL lenders currently acquire customers primarily through two
channels: the merchant partner acquisition model and the app-driven
acquisition model. In the merchant partner acquisition model, BNPL
lenders typically establish contracts with online merchants to offer
their BNPL product as a payment option on the merchant's website or
mobile app checkout page.\5\ The BNPL lenders provide merchants with
the necessary digital code to integrate or embed access to the BNPL
product into the merchant websites or mobile apps. Such digital code or
other integrations are referred to in this interpretive rule as
``integrations.''
---------------------------------------------------------------------------
\5\ See Market Trends Report at 12-13.
---------------------------------------------------------------------------
In the app-driven acquisition model, which is less common but
rapidly expanding, consumers use the BNPL lender's own website or
mobile app directly to create a digital user account to access the BNPL
product.\6\ Once activated by the provider, the consumer can use their
digital user account through the BNPL website or mobile app to access
credit and make purchases directly with partner merchants. For non-
partner merchants, the BNPL lender enables the payment part of the
credit process by issuing a single-use virtual card to the consumer,
normally through an issuer processor and a bank partner. The consumer
then typically has 24 hours to complete their purchase directly with
the merchant, using the virtual card.\7\
---------------------------------------------------------------------------
\6\ Id. at 14-15.
\7\ See, e.g., Klarna, What is a One-time card and how does it
work?, https://www.klarna.com/us/customer-service/what-is-a-one-time-card-and-how-does-it-work/ (last visited May. 14, 2024).
---------------------------------------------------------------------------
In addition, BNPL lenders may issue credit through other methods,
such as in-store or through browser extensions.\8\ These methods
generally operate the same as the acquisition methods described above,
allowing the consumer
[[Page 47070]]
to access credit with their BNPL digital user account to make purchases
either through the merchant's website or through the issuance of a
single-use virtual card.
---------------------------------------------------------------------------
\8\ See, e.g., Affirm, Bring the power of Affirm to your
Browser, https://www.affirm.com/shopping/browser-extension (last
visited May 20, 2024).
---------------------------------------------------------------------------
Regardless of how consumers access BNPL, a BNPL digital user
account is activated when a consumer first accesses BNPL credit,
similar to how a virtual credit card number for a traditional credit
card account is issued at the same time a consumer opens the credit
card account online and makes their first purchase on the card. These
digital user accounts are secure, personal profiles that the BNPL
provider activates for a consumer, enabling the consumer to access and
utilize BNPL credit.\9\ Once a digital user account is activated, the
consumer can then immediately use their BNPL digital user account on an
ongoing basis to access credit to make additional purchases. BNPL
providers typically inform consumers of their ``amount available to
spend,'' similar to a credit limit for conventional credit cards, and
offer a frictionless borrowing process allowing consumers to rapidly
access the BNPL credit.\10\
---------------------------------------------------------------------------
\9\ A digital user account is distinct from the concept of an
account in TILA and Regulation Z.
\10\ BNPL providers typically do not guarantee the ``amount
available to spend'' and each loan is separately underwritten.
---------------------------------------------------------------------------
A significant and increasing number of Americans who purchase goods
and services on credit do so with BNPL credit instead of conventional
credit cards. According to a recent CFPB Making Ends Meet survey, 17
percent of consumers with a credit record made at least one purchase
using BNPL between February 2021 and February 2022.\11\ And data from
five leading BNPL lenders reflect that originations have increased from
$2 billion in 2019 to over $24 billion in 2021.\12\ BNPL borrowers also
increased their repeat usage during this timeframe. The data reveal
that the average number of BNPL loans taken out by BNPL consumers from
a single lender each quarter rose from 1.9 to 2.8.\13\ The percentage
of BNPL borrowers with more than five loans per quarter also increased,
from 6.3 percent to 15.5 percent.\14\
---------------------------------------------------------------------------
\11\ See CFPB, Consumer Use of Buy Now, Pay Later: Insights from
the CFPB Making Ends Meet Survey, at 5 (Mar. 2023), https://files.consumerfinance.gov/f/documents/cfpb_consumer-use-of-buy-now-pay-later_2023-03.pdf (MEM Survey Report); see also Bd. of Governors
of the Fed. Rsrv. Sys., Economic Well-Being of Households in 2022,
at 46 (May 2023) (reporting 12 percent of adults in U.S. households
using BNPL in the prior 12 months, up from 10 percent in 2021).
\12\ Market Trends Report at 31.
\13\ Id.
\14\ Id. at 33-34.
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BNPL is popular among a broad range of consumers, but certain
groups have shown a significantly higher likelihood of using BNPL.
These groups include Black, Hispanic, and female consumers, as well as
consumers with an annual household income between $20,001-$50,000 and
consumers under the age of 35.\15\ In comparison to non-BNPL borrowers,
BNPL borrowers tend to have higher levels of debt, carry balances on
their conventional credit cards, have delinquencies on traditional
credit products, and make use of higher-cost financial services like
payday loans, pawn, and overdraft.\16\ BNPL borrowers are also more
likely to use other credit products like conventional credit cards,
personal loans, and student loans, but have less liquidity and savings
compared to non-BNPL borrowers.\17\
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\15\ MEM Survey Report at 22.
\16\ Id.
\17\ Id.
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Consumers often use BNPL offerings as an alternative to
conventional credit cards, and the two share many similarities. Both
combine payment processing and credit services. Both charge transaction
fees to merchants and are extensively used for retail transactions.\18\
And consumers often use these two payment methods in a similar manner.
In fact, often when a consumer is making purchases online from a
merchant's website, the only options for paying on credit consist of
conventional credit cards and BNPL, which are presented next to each
other as alternatives.
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\18\ Id. at 6.
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The CFPB has been closely monitoring the BNPL market by issuing
reports based on collected BNPL data and supervising certain BNPL
lenders. In December 2021, the CFPB issued mandatory data collection
orders to five large BNPL lenders to understand market trends and
practices. These responses formed the basis of the September 2022
report ``Buy Now Pay Later: Market Trends and Consumer Impacts,'' which
highlighted industry growth, as well as consumer benefits and risks
associated with BNPL loans.\19\ The report noted, among other findings,
a lack of standardized disclosures and challenges in resolving
disputes.\20\ In March 2023, the CFPB published ``Consumer Use of Buy
Now, Pay Later,'' which used data from the annual Making Ends Meet
survey and credit bureaus to identify demographic and other
characteristics of BNPL borrowers.\21\ In March 2024, the CFPB released
its ``Consumer Response Annual Report'' for 2023, which noted issues
consumers faced with merchants regarding BNPL, such as non-receipt of
items and challenges in canceling loans.\22\ Through monitoring
consumer complaints, the CFPB has further refined its understanding of
the BNPL market. The CFPB continues to observe the industry and monitor
new market and product trends.
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\19\ See Market Trends Report.
\20\ See id. at 72-73.
\21\ See MEM Survey Report.
\22\ See CFPB, Consumer Response Annual Report, at 64 (Mar.
2024), https://files.consumerfinance.gov/f/documents/cfpb_cr-annual-report_2023-03.pdf.
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Recognizing the importance of adequate consumer protections for
BNPL loans, the CFPB is issuing this interpretive rule so that BNPL
providers understand their obligations. As this interpretive rule
explains, lenders that issue BNPL digital user accounts are ``card
issuers'' under Regulation Z because the digital user accounts they
issue constitute ``credit cards'' under Regulation Z. The term ``credit
card''--which, as defined by TILA and Regulation Z, includes the term
``other credit device'' or ``other single credit device'' used for the
purpose of obtaining credit--encompasses digital user accounts that
consumers can use through websites, mobile apps, browser extensions, or
integrations with merchant websites or mobile apps to access BNPL
credit for the purchase of goods and services. The CFPB also affirms
through this interpretive rule that BNPL lenders that extend credit--
even though that credit is not subject to a finance charge and is not
payable by written agreement in more than four installments--are
creditors subject to subpart B of Regulation Z, including those
provisions governing cost of credit disclosures and billing disputes.
C. Legal Analysis
This interpretive rule discusses the application of subpart B of
Regulation Z to lenders that issue digital user accounts that consumers
use from time to time to access credit, which includes those lenders
that market their loans as ``Buy Now, Pay Later.'' Regulation Z \23\
implements the Truth in Lending Act (TILA).\24\ The purpose of TILA is
to ``assure a meaningful disclosure of credit terms so that the
consumer will be able to compare more readily the various credit terms
available to him and avoid the uninformed use of credit, and to protect
the consumer against inaccurate and unfair credit billing and credit
card practices.'' \25\ Accordingly, TILA and its implementing
regulation
[[Page 47071]]
generally establish uniform methods for calculating the cost of credit,
require meaningful disclosure of those costs to consumers, and provide
standardized mechanisms for resolving credit billing disputes.\26\
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\23\ 12 CFR 1026.
\24\ 15 U.S.C. 1601 et seq.
\25\ Id. at 1601(a).
\26\ Regulation Z defines credit broadly as the right to defer
payment of debt or to incur debt and defer its payment. BNPL credit
meets this definition.
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Although subpart B primarily covers open-end credit, many of its
provisions apply more broadly, including to closed-end credit, under
certain circumstances.\27\ Certain subpart B provisions, such as those
governing cardholder liability, apply to any ``card issuer,''
regardless of the type of credit offered.\28\ Regulation Z defines
``card issuer'' as ``a person that issues a credit card or that
person's agent with respect to the card.'' \29\ Additionally, ``card
issuers'' are considered ``creditors'' for purposes of subpart B if
they also extend ``either open-end credit or credit that is not subject
to a finance charge and is not payable by written agreement in more
than four installments.'' \30\ Such ``creditors'' are broadly subject
to the provisions of subpart B, including those governing disclosures
and billing dispute resolution.\31\ Thus, BNPL lenders that issue a
credit card as defined by Regulation Z are card issuers for purposes of
the regulation. And as they also extend credit, even though that credit
is not subject to a finance charge and not payable by written agreement
in more than four installments, those BNPL lenders are creditors
subject to the provisions of subpart B.
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\27\ This can include BNPL credit, which for purposes of this
interpretive rule is defined as a closed-end consumer loan for a
retail transaction that is repaid in four (or fewer) interest-free
installments and does not otherwise impose a finance charge. See
also 12 CFR 1026.2(a)(17)(iii)-(iv). To the extent that subpart B
applies to business-purpose credit cards, this would also include
business-purpose BNPL credit. See 12 CFR 1026.12(a)-(b).
\28\ See 12 CFR 1026.12, which covers unauthorized issuance and
liability for unauthorized use. Other provisions of Regulation Z may
also apply to ``card issuers'' regardless of the type of credit. See
12 CFR 1026.60, in subpart G, which outlines the rules for credit
and charge card applications and solicitations.
\29\ 12 CFR 1026.2(a)(7). Where a BNPL provider partners with
another party to extend credit, including a bank, depending on the
facts and circumstances both entities may be ``card issuers.''
\30\ See 12 CFR 1026.2(a)(17)(iii) (one of several independent
tests by which an entity can qualify as a ``creditor'' under 12 CFR
1026.2(a)(17)). Of course, were a BNPL provider to charge a finance
charge, or allow repayment in more than four installments, they
would meet one or more of the other independent tests for qualifying
as a ``creditor.''
\31\ Subpart B includes 12 CFR 1026.6 through .9, which cover
disclosures, and 12 CFR 1026.13, which covers billing error
resolution.
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The definition of ``credit card'' in TILA and Regulation Z is not
limited to a plastic or metal embossed physical card. While the term
certainly includes those, it also includes archaic forms of credit
devices like plates and coupon books, and non-physical credit devices
like account numbers, including virtual credit cards where the account
number itself is the ``credit card.'' In creating these definitions,
Congress understood the need for flexibility to cover evolving types of
credit devices, reflecting the rapid advancement of credit mechanisms
at the time of enactment. TILA defines ``credit card'' as ``any card,
plate, coupon book or other credit device existing for the purpose of
obtaining money, property, labor, or services on credit.'' \32\
Regulation Z similarly defines ``credit card'' as ``any card, plate, or
other single credit device that may be used from time to time to obtain
credit.'' \33\
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\32\ 15 U.S.C. 1602(l).
\33\ 12 CFR 1026.2(a)(15)(i). The term is also defined to
include ``a hybrid prepaid-credit card as defined in Sec.
1026.61.''
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The CFPB interprets the terms ``other credit device'' and ``other
single credit device'' found within the TILA and Regulation Z
definitions of credit card to include a BNPL digital user account that
a consumer can use through websites, mobile apps, browser extensions,
or integrations with merchant websites or mobile apps to access BNPL
credit, to the extent the user account is used to draw, transfer, or
authorize the draw or transfer of credit in the course of authorizing,
settling, or otherwise completing transactions to obtain goods or
services.\34\ The broad catch-all terms ``other credit device'' and
``other single credit device'' are not defined by TILA and Regulation
Z.\35\ However, this interpretation is consistent with the ordinary
meaning and historical context of the words.
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\34\ A BNPL integration includes, for example, a BNPL lender's
code or process embedded in the checkout flow of a merchant website
or mobile app that allows a consumer to access a digital user
account to obtain BNPL credit.
\35\ In addition, there is no well-understood definition of
``other credit device'' or ``other single credit device'' under
State law.
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The CFPB's interpretation flows from the ordinary meaning of the
word ``device.'' Merriam-Webster Dictionary contains several
definitions for the word ``device,'' including ``something devised or
contrived: such as . . . [a] plan, procedure, [or] technique . . . [or]
a piece of equipment or a mechanism designed to serve a special purpose
or perform a special function.'' \36\ Similarly, Oxford English
Dictionary defines ``device'' in part to mean ``[t]he result of
contriving; something devised or framed by art or inventive power; an
invention, contrivance; esp. a mechanical contrivance (usually of a
simple character) for some particular purpose.'' \37\ These definitions
indicate that the ordinary meaning of ``device'' is broad and
incorporates a wide range of mechanisms, tools, or procedures
specifically designed or contrived to achieve a particular purpose.
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\36\ Device, Merriam-Webster Dictionary, https://www.merriam-webster.com/dictionary/device (last visited May 20, 2024). See also,
e.g., James v. State, 113 P. 226, 228 (Okla. Crim. App. 1910) (``Mr.
Webster defines a `device' as follows: `That which is devised, or
formed by conception, a contrivance, and invention, a project, a
scheme, often a scheme to deceive, a stratagem, an artifice.' '').
\37\ Device, Oxford English Dictionary, https://doi.org/10.1093/OED/1300217116 (last visited May 20, 2024).
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The CFPB's interpretation is also consistent with use of the word
``device'' broadly in other contexts. For example, both the CFPB, and
the Federal Reserve Board (Board) before it, have interpreted ``access
device'' in Regulation E to include such non-physical devices as
personal identification numbers (PINs), telephone transfer and bill
payment codes, and other means that may be used by a consumer to
initiate an electronic fund transfer.\38\
---------------------------------------------------------------------------
\38\ See sec. 1005.2(a)(1); see also Regulation E, comment
2(a)(1)-1.
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The CFPB's interpretation is also consistent with Congress' intent
to define the terms ``other credit device'' and ``credit card''
broadly. As a preliminary matter, courts have routinely held that, as a
remedial statute, TILA should be interpreted expansively in favor of
the consumer.\39\ More specifically, as courts have recognized, the
inclusion of the phrase ``other credit device'' in the statutory
definition of ``credit card'' indicates that Congress intended the term
``credit card'' to encompass a wider scope than its customary
usage.\40\ Congress initially enacted the definitions in 1970 at the
height of a rapid evolution of credit devices, which first included
now-archaic credit devices such as coins and plates before the use of
conventional
[[Page 47072]]
credit cards became widespread.\41\ In this context, Congress appears
to have intended a flexible and comprehensive definition of ``credit
card'' that could encompass both the entire range of existing credit
devices and also those ``other credit devices'' that might not yet
exist.
---------------------------------------------------------------------------
\39\ Begala v. PNC Bank, Ohio, Nat. Ass'n, 163 F.3d 948, 950
(6th Cir. 1998), as amended (Mar. 26, 1999); Rossman v. Fleet Bank
(R.I.) Nat. Ass'n, 280 F.3d 384, 390 (3d Cir. 2002).
\40\ See, e.g., United States v. Bice-Bey, 701 F.2d 1086, 1092
(4th Cir. 1983) (holding that credit card numbers, not just the
credit cards themselves, can be a ``credit device'' for purposes of
TILA); Telco Commc'ns Grp., Inc. v. Race Rock of Orlando, L.L.C., 57
F. Supp. 2d 340, 343 (E.D. Va. 1999) (holding that telephone calling
cards can be credit cards); Munoz v. Seventh Ave., Inc., No. 04 C
2219, 2004 WL 1593906, at *4 (N.D. Ill. July 15, 2004) (``Section
1602(k) contains a broad definition of `credit card' which
encompasses items that are not within the common understanding of
the term credit card, such as a `coupon book' or `other credit
device.' '').
\41\ See John R. Webster & William F. Davis III., Bank Credit
Plans: Innovations in Consumer Financing, 1 Loy. L. A. L. Rev. 49
(1968); see also 113 Cong. Rec. 28765 (1967) (member of
Congressional Committee on Banking and Currency referring to credit
cards as ``the new credit device'').
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Indeed, the Board, which previously had jurisdiction over
Regulation Z, adopted a similarly broad interpretation of ``other
single credit device'' in 2010. The Board clarified in Official Staff
Interpretations of Regulation Z that non-physical devices--in that
case, account numbers--could be considered ``credit cards'' under the
definition.\42\ The Board explained in the rulemaking preamble that
while Congress did not generally intend to treat all account numbers as
credit cards--for example, where credit is transferred into a
consumer's asset account--it would be inconsistent with Congressional
intent not to do so when the account number could be used to access
credit for the purchase of goods and services.\43\ As an example, the
Board provided a hypothetical scenario in which an open-end credit
account was designed for online purchases, functioning like a
conventional credit card account, but only accessible with an account
number.\44\ In such circumstances, the Board stated, it believed that
TILA's credit card protections should apply.\45\
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\42\ See Regulation Z, comment 2(a)(15)-2.ii.C. An ``account
number'' contemplated by the Board's interpretation is distinct from
a BNPL digital user account.
\43\ See 76 FR 22948 (Apr. 25, 2011). In that rulemaking, the
Board was only considering open-end credit, but the CFPB believes
that the logic applies similarly to closed-end credit.
\44\ Id.
\45\ Id.
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This analysis applies equally in the BNPL context. BNPL is a
product primarily designed for the online purchase of goods and
services and a digital BNPL user account functions like a conventional
credit card. Consumers can use their BNPL digital user accounts through
BNPL websites, mobile apps, browser extensions, or integrations with
merchant websites or mobile apps to access credit for purchases. Given
its similarities to conventional credit cards, a consumer's BNPL
digital user account is among the types of ``credit devices'' that
Congress would have had in mind in enacting TILA.
In order for a device to constitute a credit card under Regulation
Z, it must be usable from time to time to obtain credit.\46\ The
commentary to Regulation Z interprets the term ``time to time'' to
``involve[ ] the possibility of repeated use of a single device.'' \47\
The CFPB interprets the phrase ``usable from time to time'' to cover a
consumer's BNPL digital user account that is issued as part of a
business model designed for repeat use that can be used through
websites, mobile apps, browser extensions, or integrations with
merchant websites or mobile apps, to access credit for the purchase of
goods and services.\48\ Like conventional credit cards, the BNPL
business model is designed around the repeat use of a digital user
account to make real-time purchases on credit.\49\ The CFPB therefore
interprets the term ``credit cards'' to include such digital credit
devices for purposes of TILA and Regulation Z.
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\46\ See sec. 1026.2(a)(15)(i).
\47\ See Regulation Z, comment 2(a)(15)-1.
\48\ The existence of a limit on the number of BNPL loans a
consumer can have at one time or the issuance of a single-use
virtual card as part of the credit extension and payment process
would not preclude the credit device from satisfying the ``time to
time'' requirement.
\49\ This is the case regardless of whether the customer is
acquired through the merchant partner acquisition model or the app-
driven acquisition model, and regardless of whether the consumer
uses the credit device more than one time.
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Of course, not all digital user accounts are credit cards. However,
digital user accounts with the purpose of giving consumers access to
credit from time to time in the course of completing transactions to
purchase goods or services, including those marketed as BNPL, meet the
regulatory definition of ``credit card.'' When consumers use them
through websites, mobile apps, browser extensions, and integrations,
they get credit in the course of completing transactions to pay for a
product at check-out or even in physical stores.\50\ And these digital
user accounts ``exist for [that] purpose.'' \51\ They are, effectively,
digital replacements for conventional credit cards, and consumers use
them in the same way as conventional credit cards. The statutory and
regulatory definitions of ``credit card'' are broad enough to capture
new, technologically advanced ``devices'' designed to mimic the core
features of conventional credit cards.
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\50\ The fact that sometimes BNPL loans are declined does not
change this fact. The same can be said about conventional credit
cards.
\51\ 15 U.S.C. 1602(l).
---------------------------------------------------------------------------
Consequently, BNPL providers issuing the credit cards (and their
agents with respect to the credit card) are ``card issuers'' for
purposes of Regulation Z. Additionally, as noted above, a ``card
issuer'' is a ``creditor'' for purposes of subpart B if it extends
credit, even though that credit is not subject to a finance charge and
not payable by written agreement in more than four installments. Thus,
BNPL lenders that issue credit cards are ``creditors'' for purposes of
subpart B and must comply with its requirements, including the
provisions related to disclosures and billing dispute resolution.
II. Regulatory Matters
This is an interpretive rule issued under the Bureau's authority to
interpret TILA and Regulation Z, including under section 1022(b)(1) of
the Consumer Financial Protection Act of 2010, which authorizes
guidance as may be necessary or appropriate to enable the CFPB to
administer and carry out the purposes and objectives of Federal
consumer financial laws.\52\ While not required under the APA, the CFPB
is collecting comments and may make revisions to the interpretive rule
at a later time as appropriate in light of feedback received. The CFPB
may take no further action if no revisions are warranted.
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\52\ 12 U.S.C. 5512(b)(1).
---------------------------------------------------------------------------
By operation of TILA section 130(f), no provision of TILA sections
130, 108(b), 108(c), 108(e), or section 112 imposing any liability
applies to any act done or omitted in good faith in conformity with
this interpretive rule, notwithstanding that after such act or omission
has occurred, the interpretive rule is amended, rescinded, or
determined by judicial or other authority to be invalid for any
reason.\53\
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\53\ 15 U.S.C. 1640(f).
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The CFPB has determined that this interpretive rule does not impose
any new or revise any existing recordkeeping, reporting, or disclosure
requirements on covered entities or members of the public that would be
collections of information requiring approval by the Office of
Management and Budget under the Paperwork Reduction Act.\54\
---------------------------------------------------------------------------
\54\ 44 U.S.C. 3501-3521.
---------------------------------------------------------------------------
Pursuant to the Congressional Review Act,\55\ the Bureau will
submit a report containing this interpretive rule and other required
information to the United States Senate, the United States House of
Representatives, and the Comptroller General of the United States prior
to the rule's published effective date. The Office of Information and
Regulatory Affairs has designated this interpretive
[[Page 47073]]
rule as a ``major rule'' as defined by 5 U.S.C. 804(2).
---------------------------------------------------------------------------
\55\ 5 U.S.C. 801 et seq.
Rohit Chopra,
Director, Consumer Financial Protection Bureau.
[FR Doc. 2024-11800 Filed 5-30-24; 8:45 am]
BILLING CODE 4810-AM-P
