The CFPB ordered five companies - Affirm, Afterpay, Klarna, PayPal, and Zip - to provide information regarding their "buy now, pay later" ("BNPL") credit programs. The CFPB expects to publish findings on the risks of these programs concerning (i) accumulation of debt, (ii) regulatory arbitrage and (iii) data harvesting.
BNPL credit is a deferred payment option that allows consumers to pay for their purchases in installments, typically requiring only a 25 percent down payment at checkout. The application process is quick and simple, and the product often comes with no interest. The CFPB noted that lenders have said BNPL is a safer alternative to credit card debt, and serves consumers with subprime credit histories.
The CFBP highlighted some concerns, however, including that the ease of getting these loans will lead consumers to lose track of their purchases and spend more than anticipated, causing them to accumulate significant debt. In addition, the CFPB expressed concern that BNPL companies are not adequately applying relevant consumer protection laws to their products, such as requirements to provide disclosures or dispute resolution protections. Lastly, the CFPB raised concerns associated with BNPL lenders having access to consumers' payment histories and using that data to engage in behavioral targeting and data monetization.
The CFPB stated it will coordinate with the Federal Reserve System and state partners, and work with international partners in Australia, Sweden, Germany, and the UK, specifically, the Financial Conduct Authority.
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