CFPB Study Outlines Need for "Buy Now, Pay Later" Rules – Investopedia
The Consumer Financial Protection Bureau (CFPB) is gearing up to place the same type of stringent protections it places on credit card companies on the “Buy Now, Pay Later” (BNPL) industry, following the release of a recent study on the practice. Officials said their findings revealed an exploding industry that not only had few consumer guardrails and helped normalize debt, but had also begun data harvesting and monetization efforts with little oversight.
“Buy Now, Pay Later is a rapidly growing type of loan that serves as a close substitute for credit cards,” CFPB Director Rohit Chopra said last Thursday. “We will be working to ensure that borrowers have similar protections, regardless of whether they use a credit card or a Buy Now, Pay Later loan.”
With such a huge focus placed on online retail in recent years, some companies and lenders began pushing their BNPL products. Whether called “pay-in-four,” “split pay,” or BNPL, the concept is the same — these were interest-free point of sale installment loans that let consumers pay for purchases over time. In most instances, down payment is required with plans typically capped around $1,000. Any late or missing payments would result in an additional charge.
According to the CFPB report, BNPL grew so quickly in popularity that the top five lenders, Affirm, Afterpay, Klarna, PayPal and Zip, were responsible for 180 million loan originations totaling $24.2 billion in 2021. Those figures dwarfed data from 2019, which saw those same lenders originating 16.8 million loans valued at $2 billion in 2019.
While the lack of interest payments and staggered repayment plans may be attractive to most consumers, CFPB researchers found that BNPL loans were associated with some potentially harmful risks.
Even though BNPL providers fall under the purview of some state and federal oversight, the CFPB is using its power over credit providers and "has authority to supervise any non-depository covered persons, such as a Buy Now, Pay Later provider, in certain circumstances."
To that end, the CFPB said it will begin identifying areas that it can provide guidance and establish rules to ensure BNPL lenders "adhere to many of the baseline protections that Congress has already established for credit cards" and will be subject to regular inspections. When it comes to the risk of borrowers taking out too much in BNPL loans, the bureau will look into how lenders can begin following accurate credit reporting practices. As for the data harvesting issue, the CFPB will find and call out the data collection practices that lenders should avoid.
Consumer Financial Protection Bureau. "CFPB Study Details the Rapid Growth of “Buy Now, Pay Later” Lending."
Consumer Financial Protection Bureau. "Buy Now, Pay Later: Market trends and consumer impacts." Page 70.
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