Small businesses can attract more customers by offering “buy now, pay later” services, but these popular payment methods come with risks. Third-party companies like Affirm and Klarna often provide these services, which allow consumers to spread out payments over several weeks or months with low or zero interest rates. While these plans can be beneficial for consumers, disputes and returns are common, costing small businesses money in fees that can add up over time.
In May, the Consumer Financial Protection Bureau (CFPB) issued a new rule that may ease the minds of small business owners. The rule states that buy now, pay later companies must provide consumers with the same legal rights and protections as credit card lenders. This means that consumers have the right to dispute charges, easily get refunds for returned items, receive billing statements, and other protections. Lenders are now required to investigate disputes, pause payment requirements during investigations, credit refunds to shoppers’ accounts, and send billing statements to consumers.
The CFPB began studying the buy now, pay later industry more than two years ago and discovered that many consumers were using these services as a substitute for traditional credit cards. The agency continues to receive complaints related to refunds and disputes, but it believes that the new rule will help bring consistency to the market. Small businesses should take note of these developments when considering offering buy now, pay later services to their customers.
