Enhance Credit Reporting and Extend Truth in Lending Act to Include Buy Now, Pay Later Loans for Consumer and Lender Protection
In the rapidly evolving world of e-commerce, Buy Now, Pay Later (BNPL) services have become a popular choice for consumers seeking flexible payment options. However, these services have been operating in a regulatory grey area, with major consumer loan regulations often not covering them [1].
BNPL providers, which approve consumers for short-term, unsecured loans at the point of purchase, do not typically report these loans to credit bureaus [2]. This lack of reporting can make it difficult for consumers to keep track of their debt and understand the potential impact on their credit scores.
Despite this, the use of BNPL services is on the rise, particularly among Gen Z consumers. According to a survey by Credit Karma, 30% of Gen Z consumers who used a BNPL loan missed at least two payments [3]. This trend is concerning, as missed payment fees, late payment fees, and interest rates for BNPL loans can be as high or higher than other consumer loans or credit cards [4].
The Consumer Financial Protection Bureau (CFPB) initially classified BNPL products as "credit cards" under the Truth in Lending Act (TILA) in 2024, subjecting BNPL providers to Regulation Z requirements. However, in 2025, the CFPB reversed this stance, announcing it would withdraw the interpretive rule and not prioritize BNPL enforcement [1].
This has left federal oversight uncertain, but significant regulatory attention and new requirements are emerging largely at the state level. For instance, New York enacted a Buy-Now-Pay-Later Act in mid-2025, requiring BNPL providers to be licensed, assess consumers' ability to repay, cap fees, and make disclosures akin to Regulation Z [1]. California has also been regulating BNPL as loans under its financing law since 2020 [1].
Meanwhile, the UK’s Financial Conduct Authority (FCA) is implementing new bespoke rules on Deferred Payment Credit (equivalent to BNPL) starting July 2026, focusing on pre-contractual information and consumer understanding [1].
Congress is also considering modernising TILA to reflect pay-in-four, pay-in-three, and even pay-in-two models [1]. Additionally, the U.S. Department of Housing and Urban Development (HUD) is studying BNPL’s impact on borrowers’ housing-related expenses and assessing whether specific BNPL regulations are needed to ensure stable mortgage lending and homeownership [2].
In summary, BNPL services, while currently only partially covered by TILA at the federal level, are facing increasing regulation focused on transparency, repayment ability assessment, and fee caps. For both BNPL providers and consumers, this evolving landscape suggests a future where these services will be held to higher standards, promoting financial responsibility and protecting consumers from potential financial harm.
References: 1. Investopedia 2. Consumer Financial Protection Bureau 3. Credit Karma 4. Consumer Reports
- As BNPL services face increasing scrutiny from regulators, the Consumer Financial Protection Bureau (CFPB) and the U.S. Department of Housing and Urban Development (HUD) are researching the impact of these services on personal-finance and homeownership.
- The lack of regulatory oversight has led to states such as New York and California implementing their own regulations for BNPL providers, including licensing requirements, repayment assessments, and fee caps.
- The use of AI in the finance industry is expanding, and regulators, such as the UK’s Financial Conduct Authority (FCA), are implementing new regulations to ensure AI-driven business practices, like BNPL, are transparent, comply with consumer protection laws, and promote financial responsibility.
