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By: Ashton Vandivert, Manager, Emerging Payments
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As Buy Now, Pay Later (BNPL) services are exploding, the Consumer Financial Protection Bureau (CFPB) is bracing for the impact on consumers.
BNPL has grown exponentially over the past two years, likely related to the financial uncertainties and e-commerce surge during the COVID-19 pandemic. BNPL transactions totaled $3 billion in 2019 and are expected to soar to $74 billion this year. The monumental movement of BNPL is clearly attracting the attention of consumers and as a result, the CFPB is not far behind.
In December 2021, the CFPB submitted an inquiry to five key BNPL service providers – Affirm, Afterpay, Klarna, PayPal and Zip. Along with the inquiry order, the agency requested comment submissions from consumers, small businesses, consumer advocates, financial institutions, trade associations, investors, state and federal regulators and experts in consumer lending, payments and marketing.
The motive behind this inquiry and request for comment was to gain information on behalf of the public to better understand how consumers interact with BNPL providers, citing concerns about accumulating debt, regulatory arbitrage and data harvesting. The CFPB is looking to gain insight into consumers’ risks and benefits when utilizing BNPL services that are unsupervised and widely unregulated.
The order closed in March 2022 and, while we’re unsure about the findings of the five providers, there were responses from approximately 50 different stakeholders. The areas of concern comprised in the responses included lack of transparency in fees, no initial credit checks prior to obtaining credit and the negative impact of credit scores in the event of a late or missed payment.
The Bureau has not yet released what action, if any, it will take in response. However, individuals and organizations throughout the payments space are speculating that new regulation could be on the table by the end of the year. In addition to rulemaking, consumer education and reactive measures against BNPL providers could result.
For the time being, the industry is waiting for the CFPB’s next move as BNPL will most likely continue to boom. In its current state with a lack of regulation, it is anticipated that the agency will strive to eliminate the gray area and act against anything perceived to be unfair, deceptive and abusive to consumers.
When it comes to the buy now, pay later game, only time will tell how new rules could change the score. If you’d like to learn more about BNPL, join us on July 26th for our Buy Now, Pay Later: Boom or Doom? webinar. Together we will walk through how BNPL works and some of the popular options being used today, discuss the impact of BNPL on your account holders and examine the credit risk for your financial institution when doing business with BNPL companies. We'll also cover what you need to know about BNPL payment dispute handling, including applicable rules and regulations to apply to your investigation process. Register now!