Banking and Finance Law Daily Wrap Up, CONSUMER CREDIT—Fintechs’ ‘buy now, pay later’ plans warrant CFPB attention, U.S. PIRG report says, (Mar 14, 2022)

By Nora Macaluso

Consumer complaints show “a need for CFPB action,” the report said.

“Buy now, pay later” agreements may come with fees and other policies that consumers don’t fully understand, and the Consumer Financial Protection Bureau should consider taking action, the U.S. PIRG Education Fund said in a report based on a review of complaints to the CFPB and Better Business Bureau.

So-called BNPL plans, offered by fintechs in partnership with retail companies, let consumers spread out payments with no fees attached if the payments are made on time. But most plans do carry late fees, and banks may charge overdraft or non-sufficient funds fees if charges come in without enough funds in the consumer’s account, the report said. The plans target young people, who may not understand the business model, the U.S. PIRG fund said. The plans “may have some benefits to consumers who want to avoid running up credit card debt,” but “consumers need to understand the differences between BNPL and other forms of payment.” The fund said the report raises concerns that “the general BNPL business model is non-transparent and may be an effort to evade existing consumer protection laws."

California has taken action against some BNPL companies, and the plans are classified as loans in that state, the report noted. Regulators in other countries are also cracking down, U.S. PIRG said.

The CFPB is already looking into BNPLs. It’s ordered five companies offering the plans—Affirm, Afterpay, Klarna, PayPal, and Zip—to provide information about their products, usage metrics and cases, user and merchant fees, and user experiences, in addition to data on servicing, credit reporting, debt collection, and more (see Banking and Finance Law Daily, Dec. 17, 2021). The Bureau plans to make its findings public.

Not every BNPL firm is accredited by the Better Business Bureau, which has also received complaints about customer service and billing problems at the companies, the report said. One company’s response to one of these complaints—that its agreement states that merchants are responsible for refunds—“suggests that consumers do not have their full credit card disputes and errors rights with the firm,” the report said.

Surveys have found “growing consumer concerns” about BNPLs, U.S. PIRG said, citing a recent Morning Consult survey that found BNPL users are significantly more likely to overdraft than non-users, with one in five borrowers missing a payment in January.

Complaints to the CFPB have risen dramatically since 2019, the report said. Most of the complaints are about incorrect information in reports, followed by “attempts to collect debt not owed” and “problem with a credit reporting company’s investigation into an existing problem.”

The consumer complaints to the CFPB and the BBB “indicate a need for CFPB action,” the report said. The Bureau should continue to monitor complaints, and consider “greater regulation and enforcement,” it said.

Consumer advocates have also taken note, the report said. Consumer Reports, the Center for Responsible Lending, and National Consumer Law Center are among those that have raised concerns about the model, according to the fund.

Companies: Affirm; Afterpay; Klarna; PayPal; U.S. PIRG Education Fund; Zip

RegulatoryActivity: CFPB ConsumerCredit DebtCollection Loans OversightInvestigations TruthInLending