BNPL Mis-Selling in Banking Consumer Disputes: Detailed Legal Explanation with Case Laws

1. Introduction

Buy Now, Pay Later (BNPL) is a short-term credit arrangement that allows consumers to purchase goods or services immediately and pay later, either in instalments or by a specified due date. BNPL products are offered through banks, non-banking financial companies (NBFCs), fintech platforms and merchant partnerships.

BNPL mis-selling occurs when a provider misrepresents the product, conceals material charges, fails to explain repayment obligations, obtains defective consent or markets a credit facility as a free service without adequately disclosing its conditions. Such conduct can generate disputes involving unauthorised credit, hidden fees, excessive penalties, credit-bureau reporting and recovery practices.

In India, the principal legal framework includes the Consumer Protection Act, 2019, the Reserve Bank of India Act, 1934, the Banking Regulation Act, 1949, applicable RBI digital-lending directions and the Credit Information Companies (Regulation) Act, 2005.

2. Meaning and Forms of BNPL Mis-Selling

BNPL mis-selling may occur in several ways:

Misleading advertising: Describing credit as entirely free when applicable late fees, processing charges or other costs have not been adequately disclosed.

Defective consent: Activating a credit facility without properly informing the consumer or obtaining valid authorisation.

Inadequate disclosure: Failing to explain the repayment schedule, annualised interest rate where applicable, default consequences or grievance procedure.

Improper credit reporting: Reporting disputed or inaccurate BNPL debt to credit information companies.

Unfair recovery practices: Using intimidation, misleading communications or inappropriate disclosure of personal financial information to collect alleged dues.

Unsuitable product distribution: Presenting a credit product as a simple payment feature without making its borrowing nature sufficiently clear.

Not every complaint or unsuccessful repayment establishes mis-selling. The consumer must establish the relevant facts, applicable legal duty and resulting harm.

3. Applicable Legal Framework

3.1 Consumer Protection Act, 2019

Sections 2(11) and 2(47) address deficiency in service and unfair trade practices, respectively. Section 35 provides for filing consumer complaints, subject to applicable jurisdictional requirements. Sections 38 and 39 address complaint proceedings and available relief.

Depending on the evidence, a consumer commission may grant appropriate relief, including refund, compensation, discontinuance of an unfair practice or correction of a defective transaction.

3.2 RBI Digital Lending Directions

The RBI's Reserve Bank of India (Digital Lending) Directions, 2025, together with other applicable RBI requirements, govern relevant digital lending arrangements involving regulated entities. Requirements may include disclosures, Key Fact Statements where applicable, transparent pricing, borrower consent, grievance redressal and restrictions on certain lending practices.

The precise obligations depend on the lender, product structure, applicable exemptions and whether the arrangement falls within the relevant regulatory definition. A fintech interface does not automatically make every BNPL transaction subject to identical requirements.

3.3 Credit Information Companies (Regulation) Act, 2005

Credit information reporting must comply with the governing statutory framework. Where BNPL debt is disputed, consumers should request verification of the account and correction of inaccurate information through the lender and relevant credit information company.

4. Important Case Laws

Case 1: Lucknow Development Authority v. M.K. Gupta (1994) 1 SCC 243

Facts: The dispute concerned deficient public services and the liability of a public development authority for improper conduct.

Legal Issue: Whether compensation could be awarded for deficiency in service and resulting harassment.

Judgment: The Supreme Court recognised the availability of consumer-law remedies for established deficiencies and oppressive conduct within the applicable legal framework.

Legal Principle/Ratio: Consumer protection law should provide effective remedies against actionable deficiencies in services.

Significance: The reasoning is relevant by analogy when a BNPL provider's established service deficiency causes financial loss or harassment. The case did not concern BNPL lending directly.

Case 2: National Seeds Corporation Ltd. v. M. Madhusudhan Reddy (2012) 2 SCC 506

Facts: Farmers purchased defective seeds and sought remedies after crop failure. The dispute concerned consumer remedies and the availability of alternative legal proceedings.

Legal Issue: Whether consumers could pursue statutory consumer remedies in the circumstances.

Judgment: The Supreme Court upheld the consumers' ability to seek relief under consumer protection legislation despite the existence of other potential remedies.

Legal Principle/Ratio: Consumer remedies should be interpreted to provide effective protection where the statutory conditions are satisfied.

Significance: BNPL borrowers may pursue consumer remedies for qualifying unfair practices or deficiencies, subject to the applicable law and the facts of the complaint.

Case 3: Internet and Mobile Association of India v. Reserve Bank of India (2020) 10 SCC 274

Facts: The RBI restricted regulated entities from providing certain banking services to virtual-currency businesses. The affected industry challenged the circular.

Legal Issue: Whether the RBI's restriction was proportionate to the objectives it sought to achieve.

Judgment: The Supreme Court set aside the circular on proportionality grounds.

Legal Principle/Ratio: Regulatory decisions remain subject to judicial review, including proportionality where legally applicable.

Significance: The judgment provides broader context for challenges involving financial regulation. It is not a direct precedent establishing liability for BNPL mis-selling.

Case 4: Indian Medical Association v. V.P. Shantha (1995) 6 SCC 651

Facts: The dispute concerned whether medical services could fall within the definition of services under consumer protection legislation.

Legal Issue: Whether qualifying professional services attracted consumer-law jurisdiction.

Judgment: The Supreme Court explained the circumstances in which medical services fall within consumer protection law.

Legal Principle/Ratio: The applicability of consumer law depends on the statutory definition of service and the nature of the relevant transaction.

Significance: The case illustrates the importance of determining whether a particular BNPL lending or facilitation arrangement qualifies as a service under the governing consumer statute. It does not decide BNPL mis-selling liability specifically.

5. Evidence and Remedies in BNPL Disputes

A consumer should preserve advertisements, checkout screenshots, the loan agreement, the Key Fact Statement where applicable, repayment schedules, consent records, payment receipts, collection messages and credit reports.

The consumer should first submit a written complaint to the lender or regulated entity, identify the disputed charge or account, and request an investigation and correction. If the complaint remains unresolved, the consumer may consider the RBI Integrated Ombudsman Scheme where the regulated entity and complaint qualify, or approach the appropriate consumer commission. The RBI Ombudsman route generally requires a complaint to the regulated entity first and ordinarily permits escalation after an unsatisfactory response or 30 days without a response.

6. Conclusion

BNPL mis-selling is principally assessed through disclosure duties, valid borrower consent, fair commercial practices, accurate credit reporting and the quality of the lender's service. Consumers may seek remedies when the evidence establishes an actionable breach. The cited decisions provide general consumer-protection and regulatory principles rather than direct rulings on BNPL mis-selling. The outcome of a particular dispute depends on the contract, the provider's regulatory status, the disclosures made and the evidence of loss or unfair conduct.