CFPB Cracks Down on Buy Now, Pay Later Financing

The Credit Financial Protection Bureau (CFPB) looks to improve consumer protections and regulations in the buy now, pay later (BNPL) industry. The agency’s concerns result from high rates of delinquencies and late fees among BNPL users. Although the exact regulations have not been discussed, the CFPB states they intend to add more comprehensive lending guidelines that will protect consumers.

The CFPB’s push for stricter regulations follows their 2021 inquiry into the top BNPL providers. The agency launched their investigation to gather more information regarding BNPL business practices and consumer protections.

The lack of uniformity among the top BNPL providers is a primary concern for the CFPB. Additionally, BNPL providers don’t provide information to credit reporting agencies. As a result, the CFPB believes there is a higher risk when borrowing with BNPL providers. Notably, borrowers become more overextended and fall into inescapable cycles of debt. Therefore, the agency is looking to regulate BNPL more heavily to ensure there are adequate protections for consumers.

The CFPB has not detailed how they plan to regulate the BNPL industry. However, they have stated that they plan to impose guidelines similar to credit cards and stricter regulations in line with the Truth in Lending Act (TILA). Nevertheless, CFPB Director Rohit Chopra believes that “If buy now, pay later lenders incorporate the protections and protocols [observed] in other financial products, [it] would go a long way to ensure […] consumers have a baseline level of protections.”

The BNPL industry is booming, with a 434% increase in BNPL usage between 2020 and 2021. Nevertheless, there have also been downsides, such as higher delinquencies and late fees. The rate of delinquencies increased by nearly 2% since 2021, with 10% of BNPL borrowers being charged late fees.

BNPL’s flexible no-interest payment plans are popular among young adults. As a result, the CFPB is looking at the adverse effects unregulated borrowing has on these borrowers. Importantly, the agency’s objective is to mitigate the negative consequences of BNPL borrowing by developing guidelines for the industry.