‘Buy now, pay later’ faces CFPB scrutiny

(Dec. 23, 2021) Concern about accumulating debt, regulatory arbitrage, data harvesting, and other components associated with “buy now, pay later” (BNPL) plans has led the CFPB to open an inquiry into the quickly expanding market, the agency said late last week.

Meanwhile, the credit-reporting agency Equifax announced over the weekend that it intends to add elements of BNPL plans (such as installment repayments) to its credit statements, filling what has become a blind spot for lenders.

In a release, the CFPB said it has issued a series of orders to firms – including Affirm, Afterpay, Klarna, PayPal, and Zip – that are using the BNPL plans to collect information about the risks and benefits of the BNPL plans which the bureau referred to as loans.

The bureau described BNPL as a type of deferred payment option that generally allows the consumer to split a purchase into smaller installments, typically four or fewer, often with a down payment of 25% due at checkout.

Bureau Director Rohit Chopra described BNPL as a new version of old layaway plans, with the twist that where the consumer gets the product immediately, but gets the debt right away too.

The bureau contended that merchants are adopting BNPL programs and are willing to typically pay 3% to 6% of the purchase price to the companies. The agency said that’s similar to credit card interchange fees, because consumers often buy more and spend more with BNPL.

Equifax said it will begin recording installment plans that allow shoppers to make four biweekly payments instead of covering the full cost at checkout, often from online sources. Those particular plans have become very popular with shoppers, as they require a low down payment followed by three additional plans over time (known as “pay in four” plans).

But the payment plans do not typically show up on credit reports, which means financial institutions do not receive a clear picture of the risk the consumer has accumulated.

The credit reporting agency said that more than 45 million people in the U.S. are expected to use BNPL services in 2021.


Consumer Financial Protection Bureau Opens Inquiry Into “Buy Now, Pay Later” Credit