What is Buy Now, Pay Later (BNPL)?
Buy Now, Pay Later (BNPL), as defined by the Consumer Finance Protection Bureau (CFPB), is a type of installment loan that typically allows you to purchase something immediately with little or no initial payment and pay off the balance over four or fewer payments.
The CFPB further defines Buy Now, Pay Later credit as “A type of deferred payment option that generally allows the consumer to split a purchase into smaller installments, typically four or less, often with a down payment of 25 percent due at checkout. The application process is quick, involving relatively little information from the consumer, and the product often comes with no interest. Lenders have touted BNPL as a safer alternative to credit card debt, along with its ability to serve consumers with scant or subprime credit histories.” It adds, “The law requires that the CFPB monitor consumer financial markets and enables the agency to require market players to submit information to inform this monitoring.”
Notable in the financial services industry is the increased involvement of the CFPB in a segment of the industry that provides “Buy Now, Pay Later” services. These developments have been reported in multiple articles in the Naehas Resource Center, an excerpt from the first follows:
In a December 16 notice, the Consumer Financial Protection Bureau (CFPB) reported it is turning its attention to this as-yet unregulated segment (“Consumer Financial Protection Bureau Opens Inquiry into “Buy Now, Pay Later”)
According to a Reuters article: “The U.S. Consumer Financial Protection Bureau (CFPB) asked five ‘buy-now, pay-later' companies for information on their business practices, amid concerns that the financing products are putting consumers at risk.” The December 16 article continued: “The agency issued the order…in the wake of a boom in ‘buy-now, pay-later’ services…CFPB said it is concerned about ‘accumulating debt, regulatory arbitrage, and data harvesting’ and is seeking data on the risks and benefits of the products.”
The main concerns encompass a range of perhaps as-yet-unrealized threats to consumers: impact on credit scores, installment payment plans, credit cards with interest-free or low-interest, interest rates, installment loans, payment methods, whether customers can pay on time, and how short term gains impact bank accounts and credit scores long term.
The industry continues to monitor expected action on behalf of CFPB regarding this issue.