CFPB Aims to Bring Credit Card Protections to Buy Now Pay Later

The Consumer Financial Protection Bureau (CFPB) is considering ways to regulate “buy now, pay later” (BNPL) companies, which have surged in popularity since the pandemic, with the Bureau saying that it would issue guidance to align sector standards to those of credit card companies, as well as establish appropriate supervisory examinations.

“In the U.S., we have generally had a separation between banking and commerce, but as big tech-style business practices are adopted in the payments and financial services arena, that separation can go out the door,” said CFPB Director Rohit Chopra, according to Reuters.

BNPL products are typically installment loans that allow consumers to make purchases in four equal payments. Although they can be easier options for consumers than credit cards, the CFPB said there are issues with dispute resolution, disclosures, and debt “stacking” that need more oversight.

The Bureau was particularly concerned that because BNPL providers do not give data to credit reporting firms, lenders could have a difficult time getting a complete picture of borrowers’ liabilities. However, BNPL companies report missed payments to credit reporting agencies, which can lower borrowers’ credit scores.

Bloomberg Law also noted that most BNPL providers require customers to use autopayment for outstanding loans through debit or credit cards, which can potentially lead to overdraft and other bank fees. Some companies have even charged multiple late fees on the same missed payment, but the CFPB did not find that to be a regular practice.

Despite the possible risks of BNPL products, the CFPB said that BNPL “imposes significantly lower direct financial costs on consumers than legacy credit products.”