United States: The boom in buy-it-now, pay-later attracts consumers’ attention
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The Buy-Now-Pay-Later (BNPL) explosion has caught the attention of lawmakers and regulators, who are taking a closer look at this booming industry.
BNPL payment offers allow consumers to buy goods or services now and pay for them over time, often in a short series of installments (eg, four payments two weeks apart). Industry researchers found that Gen Z consumers increased their use of BNPL products from 6% in 2019 to 36% in 2021. However, with this growth, lawmakers and regulators have raised concerns about BNPL , especially that consumers can easily spend more than they can afford. allow and accumulate multiple BNPL purchases with varying payment schedules and payment terms.
Read our 360 degree analysis of Buy-Now-Pay-Pater products
The list of consumer protection issues raised by legislators and regulators is long. Consumers may face late fees, failed payment fees, payment rescheduling fees, prepayment fees, account reactivation fees or other fees charged by BNPL’s providers which may not be easily apparent.
Many concerns center on the alleged inability of consumers to manage their BNPL purchases due to the lack of consolidated account statements, varying repayment schedules, and lack of standardized information and disclosures about late fees and consequences of payment. ‘failure. Consumers who take advantage of BNPL’s offerings may not have the ability to repay, and the absence of substantial credit underwriting processes may result in the granting of credit to consumers who are exposed to overdraft charges when payments from BNPL are automatically debited from bank accounts.
Whether the BNPL offer is defined as a payment service or as a form of credit is important. Some lawmakers have specifically urged the Consumer Financial Protection Bureau (CFPB) to “take action” against BNPL providers who operate unsupervised. In a letter sent to CFPB Director Rohit Chopra dated December 15, 2021, a group of six US Democratic Senators claimed that some BNPL companies are deliberately structuring their products to avoid consumer protection obligations under the Truth in Lending Act (TILA) or other lending laws, which apply to loans repayable in more than four installments or subject to a finance charge.
Stronger government regulation seems likely to be in order. On December 16, 2021, the CFPB issued a series of orders to five of the largest BNPL companies to gather information on industry practices and review concerns about consumers accumulating debt under BNPL programs. BNPL. The CFPB has also raised concerns that BNPL lenders are engaging in “regulatory arbitrage” so that they do not properly assess the consumer protection laws that apply to their products. and do not provide, for example, dispute resolution procedures.
In January, the CFPB asked the public – including consumers and merchants – to comment on their experiences with BNPL products to better understand the impact of BNPL models on the broader e-commerce and consumer credit markets. . The CFPB is also closely monitoring the actions taken by regulators in other countries with regard to BNPL, notably in Sweden, Australia and the United Kingdom. Sweden, for example, has enacted a law requiring merchants to first present consumers with payment options that do not contribute to indebtedness. Regulations regarding the ability of merchants to pass on surcharges to consumers to cover the costs that merchants have to pay to BNPL suppliers may also be at stake.
BNPL will continue to receive close attention from legislators and regulators in the coming year. Careful planning can help promote stable industry growth, which would increase benefits for businesses and consumers.
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