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CFPB Issues Market Report on Buy Now, Pay Later; Indicates it’s Ready to Regulate

on Wednesday, 21 September 2022 in Technology & Intellectual Property Update: Arianna C. Goldstein, Editor

On September 15, 2022, the Consumer Financial Protection Bureau (“CFPB”) issued a report offering insights into the burgeoning Buy Now, Pay Later (“BNPL”) industry (the “Report”).The Report follows, and is largely based on, 2021 market monitoring orders the CFPB issues to 5 BNPL providers to provide the CFPB with data on their BNPL loans.

The Report contains the following conclusions about the Buy Now, Pay Later market:

  • It’s Rapidly Growing: Between 2019 and 2021, the number of BNPL loans in the U.S. market grew by 970%. The actual dollar volume of originations in that same time period went from $2 billion to over $24 billion.
  • BNPL Products Offer a Number of Benefits over Traditional Loan Products: The Report found that BNPL loans were easy to access, with simple repayment structures and often no interest or late fees.
  • BNPL Products are Not without Consumer Risks: The Report also identified several issues of concern the CFPB has for BNPL loans, including:
      • BNPL loans often have unclear disclosures, make it difficult for consumers to make and resolve disputes, and require autopay of all loan payments.
      • BNPL lenders harvest consumer data for use in ways that compromise consumer privacy.
      • BNPL loans may encourage “overextension” where borrowers take out several loans within a short period of time from several lenders.
      • BNPL lenders are not reporting all loan information to credit bureaus, leading to the existence of “shadow debit” as those same borrowers continue to take out additional loans.

 Notably, the Report was accompanied by a CFPB press release that indicated, in no uncertain terms, that the agency intends to regulate BNPL lenders directly in the near future. Based on the press release, it appears that such regulation will, at a minimum, take the following forms –

  • Interpretive guidance or rules to ensure BNPL lenders adhere to the same baseline consumer protection that apply to credit cards today, including supervisory examinations.
  • Identification of data surveillance practices BNPL lenders should avoid.
  • Requiring BNPL lenders to develop accurate and appropriate credit reporting practices in order to address concerns of borrower over extension.

The press release ends by asking any consumers with complaints about BNPL products or services to submit those complaints online via the CFPB’s consumer complaint portal.

A copy of the CFPB’s Report is Available here. 

The CFPB’s Press Release announcing the release of the Report can be found here.

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