CFPB Opens Inquiry into Buy Now Pay Later Offerings

The Consumer Financial Protection Bureau announced yesterday that it is shining its regulatory spotlight on a growing form of credit in the financial services industry — Buy Now Pay Later (BNPL) companies — and sent inquiries to five of the major providers asking for information “to illuminate the range of these consumer credit products and their underlying business practices,” according to the CFPB.

Orders were sent to Affirm Holdings, Afterpay, Klarna, PayPal, and Zip — which offer the consumers the opportunity to split purchases into smaller installments, similar to old-school layaway or using credit. BNPL offerings have expanded rapidly in the past few years, triggering alarm bells at the CFPB to better understand the product and its impact on consumers.

Specifically, the CFPB is concerned about the amount of debt that consumers may be accumulating, the lack of regulatory oversight surrounding the products, and what BNPL companies are doing with the data they are collecting on consumers.

“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 gets the debt immediately too,” said CFPB Director Rohit Chopra, in a statement. “We have ordered Affirm, Afterpay, Klarna, PayPal, and Zip to submit information so that we can report to the public about industry practices and risks.”

The announcement by the CFPB comes on the heels of a letter that was sent to Chopra by a number of Senate Democrats earlier this week calling for an investigation into BNPL lending.

“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,” wrote the Senators, including Sen. Elizabeth Warren [D-Mass.] and Sen. Sherrod Brown [D-Ohio].

In a recently released survey, 60% of consumers said they have used a BNPL service since the start of the COVID-19 pandemic, and 10% of BNPL users have had a debt placed with a collector agency.

To illustrate the rapid growth and potential of BNPL services, Afterpay was recently acquired by Square for $29 billion.

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