The Consumer Financial Protection Bureau has released a report meant to begin the process of developing “interpretive guidance or rules” to cover gaps and consumer risks in the “buy now, pay later” (BNPL) market. The CFPB’s plans involve regulating companies that offer BNPL.
The CFPB began monitoring market activity related to BNPL earlier this year and confirmed guidance and rules would be likely. The bureau has been specifically focusing on the “Pay-in-4” style of BNPL loans which spread payments over four equal segments, and which bypass most traditional lending regulations.
“Buy Now, Pay Later firms are harvesting and leveraging data in ways we don’t see with other companies,” CFPB Director Rohit Chopra told reporters in a conference call. “Through their proprietary interfaces, they can see which products we buy through product placement.”
The way consumers have been using BNPL has changed since its introduction. Apparel and beauty merchants accounted for 80 percent of usage in 2019, but only 58.6 percent in 2021 as more consumers used these services for other purchases.
The bureau also noted a rise in BNPL loan approval rates in the report. In 2021, 73 percent of applicants were approved, compared with 69 percent in 2020, according to the report.
The bureau outlined several risks to consumers who use BNPL loans, including a lack of consumer protections compared with traditional credit card companies, data harvesting and monetizing customer data, debt accumulation and “loan stacking” — or taking on numerous loans at the same time.
Late fees are also becoming more common. The CFPB found that 10.5 percent of unique users were charged at least one late fee in 2021, compared with 7.8 percent in 2020.
“We want to ensure Buy Now, Pay Later firms are subjected to the appropriate examination just like regular credit card firms,” Chopra said.
The CFPB will determine how the credit card industry is incorporating buy now, pay later features. Staff will also identify customer surveillance procedures that may need to be curtailed, Chopra said.
Overall, the firms will be subject to appropriate supervisory examinations that align with regular credit card agencies, Chopra said, but proposed changes are ultimately the responsibility of individual firms.
“We would leave it to the companies to determine what they think is the best recourse,” a CFPB official told reporters.