The FTA, a consortium that includes FinTech companies like Klarna, has initiated a lawsuit against the CFPB in the U.S. District Court in Washington D.C.
The suit challenges a new rule from the CFPB on buy now, pay later (BNPL) loans, arguing that it imposes unworkable requirements on BNPL providers.
According to the FTA, the rule, which classifies BNPL products similarly to credit cards, mandates disclosure practices that are not suited to the operational nature of BNPL services. These products, typically structured as closed-end loans requiring bi-weekly repayments, do not align with the credit card model where a monthly billing statement covers all purchases made during the billing cycle.
The association has pointed out that the CFPB’s decision to bypass traditional notice-and-comment rulemaking before extending these obligations, as required under the Truth in Lending Act, constitutes a procedural violation. The lawsuit emphasizes that this oversight means the rule should be set aside.
Further complicating the scenario, the new regulation demands the issuance of periodic statements 14 days prior to payment deadlines—a requirement that FTA claims is infeasible given the structure of BNPL payments. The FTA argues that this requirement fails to consider the unique purchasing and payment schedules associated with BNPL products, thus making compliance impossible.
FTA also contends that the CFPB has overstepped its statutory authority with the interpretive rule that became effective at the end of July. Although the CFPB announced a grace period in August during which penalties would not be enforced to allow for a transition to compliance, the association believes the rule’s requirements necessitate a significant overhaul of technology and processes to manage billing disputes and errors effectively.
As the legal proceedings unfold, the FTA remains critical of the CFPB’s approach, which it views as not fully accounting for the operational realities of BNPL services, potentially leading to confusion among consumers due to inconsistent compliance practices among providers.
“The new rule is arbitrary and capricious because it fails to consider how its new disclosure obligations are ill-fitted for BNPL products, demonstrating that the CFPB fails to consider and address important aspects of how BNPL products function on the ground,” the FTA stated in the lawsuit.
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