In a new blog post, “Buy now, pay later – and comply with the FTC Act immediately,” the FTC reminds nonbank participants in the buy-now-pay-later (BNPL) market, such as retailers, BNPL providers, marketers, and debt collectors, that they can be liable for violations of Section 5 of the FTC Act based on the information they communicate to consumers and how they communicate such information.

Market participants are advised by the FTC to keep the following three key principles in mind when conducting a BNPL compliance review:

• Misrepresentations regarding the cost of a product or the terms of the transaction, including associated fees, are deceptive and violate the FTC Act.  Even if some consumers achieve the advertised result, an advertising claim can still be deceptive if it is not true for the typical consumer and not supported by reliable data.
• When designing and incorporating user interfaces that offer BNPL to consumers, particularly when using aggregate or individualized consumer data in that process, companies should avoid “dark patterns” that negatively affect consumers’ understanding of the material terms of the transaction such as hiding or obscuring material information from consumers, whether by requiring users to navigate a maze of screens, using non-descript dropdowns or small icons, or burying information in Terms of Service documents.
• The presence of multiple actors in a transaction is not a shield against liability. When retailers and BNPL companies offer payment plans to consumers, both may be held liable for practices that are deceptive or unfair.  For example, if a customer does not receive a timely refund on goods purchased using a BNPL product, any company that made misleading claims about the refund process or that was involved in delaying refunds could be liable under the FTC Act.

Earlier this month, the CFPB issued its long-awaited report on BNPL products in which it identified consumer risks arising from BNPL products.  The CFPB also announced its plans to consider various actions to address the potential consumer risks identified in the report, such as issuing interpretive guidance or rules to apply certain credit card protections to BNPL, supervising BNPL lenders, and reviewing credit reporting practices.

On October 3, 2022, from 1 p.m. to 2 p.m. ET, Ballard Spahr will hold a webinar, “The CFPB’s Report on Buy-Now-Pay-Later: What are the Takeaways and the CFPB’s Expected Next Steps?”

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