Klarna has described the recent guidance from the Consumer Financial Protection Bureau (CFPB) relating to Buy Now, Pay Later (BNPL) regulations in the US as “baffling”.
The Swedish fintech’s bold response comes after the CFPB’s decision to classify all BNPL lenders as credit card providers, and as such users of these services will be subject to the same legal protections and rights that apply to conventional credit cards.
Under these new regulations, the CFPB has outlined specific requirements for BNPL services. These regulations pertain to three critical areas: handling dispute investigations, managing refunds for returned items or cancelled services and issuing billing statements.
Although the fintech has stated its welcome for regulation, Klarna compares credit cards and BNPL to “oranges” and “apples” in a blog post titled ‘The CFPB should recognise key differences between BNPL and credit cards.’
Klarna wrote: “We have long supported and called for bespoke, proportionate BNPL regulation that fits the unique nature of the products, fosters innovation and ensures consumer protection for years.
“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 $1.15trn in credit card debt.
“Trying to regulate BNPL like a credit card is like comparing apples with oranges. So today’s announcement is confusing. Klarna is already working to a high standard in investigating disputes, pausing payments, providing consumers with comprehensive billing statements.”
In the regulatory announcement, the CFPB stated that its decision was informed by a market report revealing that over 13% of BNPL transactions were associated with a return or dispute. The survey, conducted across five firms, highlighted that consumers disputed or returned transactions amounting to $1.8bn.
Furthermore, the regulator contends that the absence of dispute protections could lead to consumer confusion and complications when seeking to return merchandise.
However, Klarna has pointed out that other countries worldwide have implemented a “proportionate regulatory framework”, suggesting that the US may be addressing the wrong issue or misunderstanding the situation.
Klarna continued: “Over the last several years we have seen governments across the world, from Australia to the United Kingdom, recognize the fundamental differences between credit cards and BNPL products, therefore decide to create a proportionate regulatory framework that fits the consumer needs.
“Credit cards typically allow users to borrow up to a predetermined limit, are underwritten at a moment in time, and charge revolving interest on unpaid balances. They typically come with various fees, including annual fees, and interest charges that can accumulate if the balance isn’t paid off each month. Leading to debt of over $1trn and rising in the US.”
Looking forward, the fintech said that it hopes the CFPB will recognize the “major differences” between BNPL and credit cards, explaining that they operate in “fundamentally” different ways.
The statement concluded: “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, proven by our global defaults of 1%.
“This model provides consumers with a transparent and predictable repayment structure, making it easier to manage their finances without the burden of accumulating interest.”
