01:48 PM EDT, 05/22/2024 (MT Newswires) -- The Consumer Financial Protection Bureau issued an "interpretive rule" Wednesday that empowers consumers to dispute charges and demand a refund on Buy Now, Pay Later, or BNPL, loans.

The US government agency confirmed that BNPL lenders are credit card providers and as such, must provide consumers legal protections and rights that apply to conventional credit cards.

Lenders must probe consumer disputes, pause payment requirements during the investigation and sometimes issue credits, according to the CFPB rule. Lenders must credit refunds to consumers' accounts in case of product returns or cancellation of services. Under the rule, consumers must receive periodic billing statements, the agency said.

"When consumers check out and choose (BNPL), they don't know if they will get a refund if they return their product or whether the lender will help them if they didn't get what was promised," CFPB Director Rohit Chopra said. "Regardless of whether a shopper swipes a credit card or uses (BNPL), they are entitled to important consumer protections under long-standing laws and regulations already on the books."

The CFPB said it began its inquiry into the fast-growing BNPL market more than two years ago and continues to see complaints pertaining to refunds and disputed transactions. The agency found in a market report that more than 13% of BNPL transactions involved a return or dispute. In 2021, consumers disputed or returned $1.8 billion in transactions at the five firms surveyed, the agency said.

PayPal ( PYPL ) , Affirm (AFRM) and Klarna are among the major players in the BNPL industry.

Affirm said it's encouraged by the CFPB's efforts to bring consistency to BNPL loans. "We are encouraged that the CFPB is promoting consistent industry standards, many of which already reflect how Affirm operates," the company said. Affirm said it doesn't charge late or hidden fees and underwrites every transaction. The company provides "consistent and transparent disclosures, and (offers) dispute and error resolution assistance," it said.

In a separate statement, Klarna called the CFPB's rule "confusing" and said it doesn't see the need for any "major changes" to the company's business following the agency's announcement.

"It is baffling that the CFPB fails to acknowledge the fundamental differences between BNPL and credit cards in their guidance and this announcement does nothing to address the $1.15 trillion in credit card debt," the company said. "Klarna's BNPL is short-term, no interest credit with no fees when paid on time. At Klarna, we underwrite every transaction to ensure we only lend to consumers who can pay us back."

PayPal ( PYPL ) shares were down 2.3% in Wednesday afternoon trade, while Affirm fell 5.3%. PayPal ( PYPL ) didn't respond to MT Newswires' request for comment.

The CFPB said it will accept public comments on the rule through Aug. 1.

Price: 62.86, Change: -1.25, Percent Change: -1.94