The news: The Consumer Financial Protection Bureau (CFPB) plans to revoke its interpretive rule on buy now, pay later (BNPL), it said in a court filing.

• The rule classified BNPL providers as credit card issuers, requiring them to provide users the same rights and legal protections that traditional credit cardholders get.
• The court filing was part of the lawsuit the Financial Technology Association (FTA) brought against the CFPB over this rule. The CFPB asked the judge to halt the legal proceedings due to its plans to withdraw the rule.

How we got here: The CFPB issued the interpretive rule in May, requiring BNPL providers to investigate disputes, refund returned products and canceled services, and provide periodic billing statements.

The FTA—which includes BNPL providers like Block, Klarna, PayPal, and Zip—sued the CFPB in October.

• It argued the rule was “arbitrary and capricious” and failed to consider how BNPL products function at a base level.
• For example, they argued that since BNPL loans typically require payments every two weeks, it’s “impossible to send periodic statements for all loans” at least 14 days in advance of the next payment, as the rule required.

The bigger picture: The CFPB dropping this rule lines up with the Trump administration’s larger efforts to dismantle the Biden-era CFPB’s actions and the agency itself.

• CFPB employees were directed in February to stop all supervision, enforcement, rulemaking, investigations, and public communications. Final rules’ effective dates were also suspended.
• Since then, the agency has dropped its lawsuit against Zelle and is expected to scrap its open banking rule and its rule to regulate apps like Apple Pay and Google Wallet as banks.

Our take: The decision to revoke this rule is a win for the BNPL fintechs, but it leaves the industry back at square one in terms of regulation. While BNPL has grown rapidly in recent years, regulation didn’t keep pace. With this rule gone, BNPL providers remain in regulatory limbo.

While regulatory uncertainty persists, providers should get ahead of potential scrutiny on issues that will likely come up again, like consumer overextension and debt accumulation. One way they can do this is by following Affirm’s lead and begin credit reporting: Affirm announced earlier this month that it would report its pay-over-time products to Experian, with plans to expand to other credit reporting agencies in the future.