CFPB Issues Report on Financial Profiles of Buy Now Pay Later Customers
The Consumer Financial Protection Bureau (CFPB) recently published a report analyzing the financial profiles of buy now, pay later (BNPL) customers, finding that BNPL consumers were more likely to also use credit cards, payday loans, and other high-interest financial products than nonusers.
“A common misconception of Buy Now, Pay Later borrowers is that they lack access to other forms of credit,” said Rohit Chopra, CFPB Director. “Our analysis shows that these borrowers are more likely to use other credit products. Since Buy Now, Pay Later is like other forms of credit, we are working to ensure that borrowers have similar protections and that companies play by similar rules.”
Nearly 95 percent of BNPL customers had at least one credit record in another account, compared to 86 percent of nonusers. They had significantly higher usage in multiple credit products than non-borrowers, including personal loans (32 percent compared to 13 percent), retail credit accounts (62 percent compared to 44 percent), and student loans (33 percent compared to 17 percent).
The report highlighted BNPL loan concerns for lenders along with risks to customers. Borrowers using multiple credit products are more than twice as likely than non-borrowers to be at least 30 days delinquent on a personal loan, auto loan, student loan, mortgage, credit or retail card. Lenders also are not required to report users’ activity to credit bureaus.
“The CFPB has said it’s concerned about consumers overextending themselves with so-called ‘loan stacking,’ where they’re taking out multiple BNPL loans at the same time, and the lack of visibility into BNPL loan exposure via credit bureaus,” said Steven Appelbaum, a partner at law firm Saul Ewing, according to American Banker.
18 percent of BNPL users had at least one reported delinquency, compared to 7 percent of nonusers. The report also found that Black, Hispanic, and female consumers, as well as those earning between $20,001-$50,000 annually, were more likely than average to use BNPL products.
Appelbaum noted that the CFPB seems to be planning to issue BNPL rules, and in September 2022 it published a market-monitoring overview detailing the areas of risk for consumers using BNPL products.
Click here for the full report.