Lawsuit Seeks to Vacate CFPB’s BNPL Rule

In what may be the “new normal” in the post-Chevron regulatory environment, a lawsuit has been filed against the Consumer Financial Protection Bureau (the “CFPB”) to set aside the CFPB’s interpretive rule governing “buy now, pay later” (“BNPL”) products. The BNPL rule, which was issued by the CFPB on May 31, 2024, subjects BNPL products to many of the requirements for open end credit under the Truth in Lending Act (“TILA”) and Regulation Z. The BNPL rule has faced significant criticism since its release and that criticism has led to the filing of this lawsuit by the Financial Technology Association (“FTA”), on October 18, 2024, in federal district court located in Washington D.C.

The FTA is an organization representing numerous financial technology companies. The FTA’s complaint seeks to set aside the CFPB’s BNPL rule on a number of, mostly procedural, grounds including the following:

• the rule violates the administrative procedures act’s (“APA”) notice and comment requirements, which are required for the promulgation of a new rule. According to the complaint, the CFPB has done an “end run” around this requirement by stating that the rule is not new at all, but is merely an “interpretive rule,”
• the rule further violates the APA by attempting to impose obligations beyond those permitted by the Truth in Lending Act, and
• the rule is arbitrary and capricious where the CFPB fails to consider that certain obligations imposed by the new rule are a poor fit for BNPL products and did not give providers sufficient time to come into compliance with such obligations.

The complaint seeks to have the BNPL rule declared arbitrary, capricious, and an abuse of discretion and vacated and further seeks to enjoin the CFPB from enforcing the BNPL rule against the FTA or its members.

The BNPL rule is one of several recent rulemakings engaged in by the CFPB. Certain of the CFPB’s other rulemakings, and its interpretive rule governing earned wage access products in particular, are likely to face similar challenges over the coming months and years.

A copy of the FTA’s complaint is available here.