The bureau says it is concerned about accumulating debt and compliance with consumer protection laws that apply to buy now, pay later products.
12/21/2021 2:00 PM
2 minute read
The Consumer Financial Protection Bureau has released a series of orders to collect information on the practices of five companies providing “buy now, pay later” (BNPL) credit, according to a news release.
“The orders to collect information on the risks and benefits of these fast-growing loans went to Affirm, Afterpay, Klarna, PayPal, and Zip,” according to the news release. “The CFPB is concerned about accumulating debt, regulatory arbitrage, and data harvesting in a consumer credit market already quickly changing with technology.”
Use of buy now, pay later credit has grown during the pandemic and the current holiday season—essentially a modern-day layaway, according to the bureau.
As investors and “Big Tech” companies enter the BNPL industry and more consumers use these payment options, the CFPB is seeking more information on the “range” of these business products and their business practices.
U.S. senators also urged the CFPB to review these products, according to a news release from the Senate Committee on Housing, Banking and Urban Affairs.
A letter from members of the committee, including U.S. Sen. Jack Reed, D-Ill., and several colleagues, states, “While the emergence of BNPL as affordable small-dollar credit has potentially provided an alternative to more costly forms of credit, these products also have the potential to cause consumer harm. Many BNPL providers structure these products in an effort to avoid certain consumer protection obligations under the Truth in Lending Act or the Military Lending Act, which generally apply to loans that are repayable in more than four installments or are subject to a finance charge. BNPL products generally do not receive all of the protections credit cards have, including those governing ability-to-repay, monthly statements, reasonable and proportional penalty fees, and the ability to raise merchant-related disputes.”
The committee recognized the CFPB’s efforts to educate consumers about these products.
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