Banking and Finance Law Daily Wrap Up, CONSUMER CREDIT—CFPB receives public comments on ‘buy now, pay later’ programs, (Mar 28, 2022)

By Ursula Furi-Perry, J.D.

The CFPB is investigating the effects of BNPL agreements, which are largely unregulated, and previously invited comments from interested parties on BNPL products and business practices.

The Consumer Bankers Association (CBA) and the National Community Reinvestment Coalition (NCRC) have responded to the Consumer Financial Protection Bureau’s request for public comment on “buy now, pay later” (BNPL) products and business practices. BNPL credit is a deferred payment option, allowing consumers to purchase an item and split its price into smaller installments, generally paying a down payment at the time of checkout and paying the remaining balance over time. The NCRC reports that “BNPL services have gained substantial adoption among consumers and are now a commonplace alternative in online shopping carts,” noting that more than 45 million consumers were active users by the end of 2021, accounting for the facilitation of approximately two percent of all online retail sales.

In January, the CFPB expanded its inquiry into BNPL products and business practices, inviting public comment from all interested parties (see Banking and Finance Law Daily, Jan. 13, 2022). In December 2021, members of the Senate Banking Committee Companies asked the Bureau to review the BNPL market and take action to protect consumers, expressing potential concerns about people taking on debt they could not afford from companies not subject to banking oversight. The Bureau reported concerns that “there may be some systemic, underlying problems, particularly around accumulating debt, regulatory arbitrage, and data harvesting in a consumer credit market already quickly changing with technology.”

CBA comment letter. The CBA’s comment letter dated March 25, 2022, urged the Bureau to consider appropriate measures to ensure BNPL products continue to be accessible to consumers to meet their financial needs, noting that not only “are BNPL products very popular with consumers, but they can also play a positive role in consumers’ lives by making a purchase possible and extending credit for something the customer may not have the ability to pay for in its entirety all at once.”

The CBA urged the Bureau to focus its attention on four critical issues: standardized disclosures, even though BNPL products fall outside the Truth in Lending Act; transparency and consumer choice in companies’ autopay practices; ensuring that BNPL providers offer adequate dispute resolution procedures; and promoting but not requiring credit bureau reporting “once the credit bureaus develop reporting mechanisms that incentivize use by BNPL lenders and allow "pay-in-four" loans to be reported accurately.”

NCRC comment letter. The NCRC’s comment letter, also dated March 25, called on the Bureau to move swiftly to bring BNPL under rules that will protect consumers. “Since the evidence shows that consumers use BNPL as a form of revolving credit and BNPL firms meet the definition of “card issuers,” the Bureau should treat BNPL in a manner consistent with how it already regulates credit cards,” the letter stated, including classifying providers as “card issuers” under the Truth in lending Act and Regulation Z.

Consumers often use BNPL programs as a form of revolving credit and as a device to purchase goods and services, the NCRC noted, but they forfeit important dispute resolution rights and fraud protections, including the right to statements. The letter also stated that BNPL programs use deceptive structures to hide their true cost, and that because relationships with providers tend to be exclusive, competition is undermined. “NCRC is concerned about the impact of these relatively unregulated services. We commend the Bureau for initiating this process and encourage it to bring these products inside the framework of consumer credit,” the letter stated.

Companies: Consumer Bankers Association; National Community Reinvestment Coalition

RegulatoryActivity: CFPB ConsumerCredit DebtCollection Loans OversightInvestigations TruthInLending