On December 16, the CFPB issued a series of orders to five companies offering “buy now, pay later” (BNPL) credits. The ordinances aim to collect information on the risks and rewards of these “fast growing” products versus concerns about “debt accumulation, regulatory arbitrage and data collection in a consumer credit market. which is already evolving rapidly with technology ”. BNPL is a deferred payment option that allows consumers to split a purchase into multiple installments, typically four or less, often with a 25% down payment due at checkout. To underscore BNPL’s current popularity, a report released by the California Department of Financial Protection and Innovation recently reported that “[t]he six major lenders buy now and pay later accounted for 10,924,547, or 91%, of total consumer loans created in 2020 ”(we discussed this report in a previous post on the Consumer Finance & FinTech blog here) .
The CFPB issued the orders in accordance with section 1022 (c) (4) of the Consumer Financial Protection Act (12 USC § 5512 (c) (4)), which authorizes it to “supervise the financial markets of consumers and to the agency to require players to submit information to inform this surveillance. The CFPB provided an example of the order issued to these companies, containing 20 requests for information and data on several subjects, including:
- Business model / metrics
- Loan performance indicators
- Consumer protection
- Contacts and user demographics
- Data gathering
- Data monetization
The CFPB plans to publish the aggregate findings from this survey and, through the ordinance, seeks to shed light on the range of these consumer credit products and their underlying business practices. The Bureau also noted that in the framework of the investigation, it is collaborating with Australia, Sweden, Germany and the United Kingdom, in particular the Financial Conduct Authority. The CFPB will also ensure coordination with the rest of the Federal Reserve System, as well as with its state partners.
Along with the orders and the press release, CFPB also published a blog for consumers on what it considers to be common risks of using BNPL, including that BNPL products often come with a fee, the process complicated return of goods purchased with BNPL, the less consumer protections offered with respect to credit cards, and which have an impact on credit scores. This follows a similar blog post that was published by the CFPB last summer (we discussed this previous article in a previous Consumer Finance & FinTech blog post here).
Put into practice : While this is the government’s first concrete action targeting BNPL participants, it should come as no surprise given the “massive growth of BNPL” and increased congressional investigations. The CFPB’s announcement comes after a House Financial Services hearing regarding BNPL, held on November 2, 2021, and a day after six U.S. Democratic Senators from the Banking, Housing and Urban Affairs Committee, including Elizabeth Warren, urged the CFPB in a letter to review BNPL products. Participants in the BNPL space would be advised to review these latest CFPB statements to ensure their processes align with the agency’s consumer protection goals. Likewise, we should expect this investigation to be a gateway to enforcement and oversight in the BNPL market.