Federal: Comment Letter to CFPB - Truth in Lending (Regulation Z) Use of Digital User Accounts to Access Buy Now, Pay Later Loans Interpretive Rule

The Honorable Rohit Chopra

Director

Consumer Financial Protection Bureau

1700 G Street NW,

Washington, DC 20552

Re:       Truth in Lending (Regulation Z); Use of Digital User Accounts to Access Buy Now, Pay Later Loans Interpretive Rule, Request for Comment—CFPB–2024–0017

Dear Director Chopra,

On behalf of The American Fintech Council (AFC),^[1] I am submitting this comment letter in response to the Consumer Financial Protection Bureau’s (CFPB or the Bureau) Interpretive Rule and Request for Comment on the Use of Digital User Accounts to Access Buy Now, Pay Later Loans regarding Truth in Lending (Regulation Z)—referred to henceforth as the “Interpretive Rule”. ^[2]

AFC is the premier trade association representing the largest financial technology (Fintech) companies and innovative BaaS banks. Our mission is to promote a transparent, inclusive, and customer-centric financial system by supporting responsible innovation in financial services and encouraging sound public policy. AFC members foster competition in consumer finance and pioneer products to better serve underserved consumer segments and geographies. Our members are lowering the cost of financial transactions, allowing them to help meet demand for high-quality, affordable products. 

AFC has publicly advocated for standards or clear and consistent regulatory frameworks for innovative financial services and products that are appropriate for the size, activity, and risk posed by the entity providing the service. Also, AFC has advocated for a unified regulatory environment for product and service offerings that are provided to consumers for a similar purpose or in a similar manner. As we have noted previously, AFC believes that similarly situated products, such as credit cards and buy-now-pay-later (BNPL) loans should be regulated in a similar manner to ensure that consumers experience the same experience and safeguards across these products.^[3]

To that end, AFC adopted policy standards constituting our view of responsible BNPL services. Most importantly, these standards deem BNPL services as loans. Similar to the rationale the Bureau discussed in the Interpretive Rule, AFC believes that itis prudent to categorize BNPL services as loans to ensure that consumers receive clear and transparent disclosures of terms, fees and other relevant information. Given AFC’s standards for responsible BNPL loans, we are generally encouraged by the Bureau’s Interpretive Rule. However, we believe the Bureau should delay the effective date of the Interpretive Rule.

AFC appreciates CFPB’s effort to provide an adequate compliance window for BNPL lenders by stating that the Interpretive Rule is applicable 60 days after its publication in the Federal Register. Given the complexity and variation in business models, lender practices, and partnerships with merchants, as well as differences in the levels of preexisting compliance with the provisions enumerated in the Interpretive Rule by BNPL lenders, it seems prudent to adopt an extended compliance period. Therefore, AFC recommends extending the effective date oft he Interpretive Rule from its current date of July 30, 2024, to January 1, 2025.

In lieu of formal guidance, as was provided by the Interpretive Rule, AFC has consistently advocated for compliance with the spirit of the Truth in Lending Act (TILA) and its implementing regulation, Regulation Z. To that end, our members offering BNPL loans have sought to ensure they are aligned with this standard.

However, it is worth noting that the Bureau’s Interpretive Rule establishes specific requirements for BNPL lenders that were not previously identified through a notice and comment period or other formal rulemaking process. The requirements established under Regulation Z and identified in the Interpretive Rule are novelly applied to BNPL lenders. Thus, these lenders may need additional time to modify their processes and practices to ensure they are fully compliant with the requirements set forth in the relevant sections of Regulation Z, as identified in the Interpretive Rule. Specifically, BNPL lenders may need to consider changes to their disclosures, periodic statements, and billing rights to meet the compliance requirements established in Regulation Z, Subpart B. While some BNPL lenders may enter into compliance with the views expressed in the Interpretive Rule sooner than others, it is important to provide due consideration to those BNPL lenders who need additional time to comply in order to not stymie the emerging BNPL sector or improperly limit the options available to consumers.

Further, CFPB issued its Interpretive Rule without any implementation guidance, such as small entity compliance guide, Frequently Asked Questions webpages, webinars related to the Interpretive Rule, or other forms of guidance to the industry. Without the aforementioned implementation guidance documents, industry participants are tasked with implementing the Interpretive Rule without perfect understanding of the Bureau’s views regarding best practices. In turn, this will increase the likely time it takes for BNPL lenders to meet the compliance requirements applied to them through the Interpretive Rule. While AFC recognizes that there is no statutory requirement for the Bureau to provide the types of implementation guidance documents identified, it is our view that it is a best practice for the CFPB to provide implementation guidance when an Interpretive Rule—which functions as the establishment of supervisory expectations on a given topic—has the de facto ability of functioning as a legislative rulemaking. AFC believes that given the dearth of agency rulemaking related to BNPL lending, that this Interpretive Rule could have the force of a legislative rulemaking.

Finally, an extension is necessary for BNPL lenders to test and responsibly implement necessary changes before civil liability attaches to these additional requirements. Indeed, TILA section 130 provides for a private right of action for violations of the statute.^[4] Without guidance from the Bureau, both courts and state regulators, who may seek to enforce, could construe these provisions differently and not as the Bureau intended. As a result, BNPL lenders may face lawsuits from private litigations and enforcement actions from other regulators without the benefit of clarity on application of the Interpretive Rule.

Therefore, it is crucial that the Bureau allow adequate time for all BNPL lenders to adhere to the specific requirements enumerated in Regulation Z and applied to BNPL lenders via the Interpretive Rule. Expanding the compliance window to January 1, 2025,will help to ensure that BNPL lenders across the sector are able to effectively review and amend their processes and practices to comply with the supervisory expectations expressed in the Interpretive Rule.

*          *          *

AFC appreciates the opportunity to comment on CFPB’s Interpretive Rule and Request for Comment on the Use of Digital User Accounts to Access Buy Now, Pay Later Loans. We thank you for your consideration of our comments.

Sincerely,

Ian P. Moloney

SVP, Head of Policy and Regulatory Affairs

American Fintech Council

^[1] AFC’s membership spans technology platforms, non-bank lenders, banks, payments providers, loan servicers, credit bureaus, and personal financial management companies.

^[2] CFPB, Truth in Lending (Regulation Z); Use of Digital User Accounts To Access Buy Now, Pay Later Loans, 89

FR47068 (May 31, 2024).

^[3] See AFC Written Testimony on the Impact of Fintech in New York’s Banking Industry, Mar. 7,2024, available at https://www.fintechcouncil.org/advocacy/american-fintech-council-new-york-hearing-written-testimony and AFC Comment Letter on Request for Information- Customer Identification Program RuleTaxpayer Identification Number Collection Requirement, May 28, 2024, available at https://www.fintechcouncil.org/advocacy/federal-comment-letter-on-request-for-information--customer-identification-program-rule-taxpayer-identification-number-collection-requirement.

^[4] 15 U.S.C. §1640.