(CNN) – Regulators in Washington could crack down on the industry behind “buy now, pay later”, the increasingly popular method for consumers to buy things online.
The Consumer Financial Protection Bureau said Thursday it was seeking to “collect information on the risks and rewards of these fast growing loans” from five major BNPL companies: Affirm; Australian Afterpay, which is purchased by the owner of Square Block; Pay Pal; Swedish private fintech Klarna; and Zip, another BNPL company based in Australia.
Shares of Affirm, which went public in January, plunged more than 10% following the CFPB announcement. Block’s shares fell about 5%, but that drop may also have something to do with a lawsuit brought against it by tax preparer H&R Block. PayPal has gone down slightly.
“Buy now, pay later is the new version of the old layaway plan, but with modern, faster twists where the consumer gets the product immediately but also gets the debt immediately,” the CFPB director said. , Rohit Chopra, in a statement Thursday.
The CFPB said it is particularly concerned about how quickly consumers can accumulate debt using BNPL services and also how BNPL companies can collect data on their customers. He added that he was working with international partners in Australia, Sweden, Germany and the UK on the investigation.
The announcement comes a day after six U.S. Democratic Senators from the Banking, Housing and Urban Affairs Committee, including Elizabeth Warren, wrote a letter to the CFPB, urging it to address potentially abusive practices in the industry.
“While the emergence of BNPL as affordable low dollar credit has potentially provided an alternative to more expensive forms of credit, these products also have the potential to harm consumers,” the senators wrote.
“BNPL non-bank providers currently operate without significant oversight. They are generally not subject to federal oversight which may detect unfair, deceptive or abusive practices or other violations of federal consumer protection laws, ”the senators added, noting that“ consumers may not be aware of the situation. aware of these regulatory loopholes and may be led to mistakenly believe that credit obtained from a BNPL provider has protections similar to those of credit cards.
BNPL has been a big trend in the financial services world this year. Affirm shares nearly doubled from their initial public offering price, even after factoring in Thursday’s drop. The company announced a deal with Amazon in August.
And Klarna is one of the most valued private startups in the world. With a recent valuation of $ 45.7 billion, Klarna is one of the most anticipated potential IPOs of 2022.
A spokesperson for Affirm said in an email to CNN Business that “we welcome the CFPB review and support regulatory efforts that benefit consumers and promote transparency within our industry.”
The Affirm spokesperson added that the company has “never charged late fees or hidden fees, ever” and that “we will continue to engage with all of our stakeholders, including regulators, to support efforts that advance our mission “.
A spokesperson for Klarna told CNN Business that “we believe proportionate regulation is a good thing and sets the standard in providing consumers with an interest-free, fair and sustainable alternative to credit cards.”
“Through this process, we believe these benefits will be very clear and we will continue to work with regulators to inform them of how our products are structured, used and benefit both consumers and retailers,” added the spokesperson for Klarna.
A spokesperson for Afterpay told CNN Business that the company “welcomes efforts to ensure that there are appropriate regulatory protections for consumers in BNPL’s diverse industry, and that suppliers meet high standards and offer positive results for consumers while protecting their data, “adding that” Afterpay offers consumers better transparency, lower costs and better budgeting tools than traditional forms of credit and encourages responsible spending.
For his part, a PayPal spokesperson told CNN Business that “our customers trust us to be transparent and we take this responsibility very seriously. PayPal is reviewing the letter and we will continue to work productively with CFPB to provide the requested information. “
Neither Block nor Zip were immediately available for comment.
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