Late last year the CFPB launched a market-monitoring inquiry into buy now, pay later (BNPL) products and business practices. The CFPB released its findings in mid-September and published new data on how the industry has evolved: since 2019, BNPL volume has grown 10x and the proportion of loans from repeat users has increased significantly. BNPL is also diversifying from apparel merchants to home and personal effects (sporting equipment, jewelry, games). More significantly, margins for surveyed firms declined from both revenue contraction and expense increases.
Today, BNPL is largely not considered a loan and has so far been exempt from Reg Z (no interest, fixed four installments). As such, BNPL providers do not have the same disclosure requirements, can limit credit bureau interactions, and do not need to assess a user’s ability to repay. Notably, there has been significant debate as to whether BNPL should be classified as a loan (California moved to regulate BNPL firms in 2020); the CFPB’s report suggests that BNPL products are loans and should be regulated. Specifically, the CFPB outlined several next steps it plans to undertake, many of which would have far-reaching impacts given the focus on data monetization as well as codifying “baseline protection” rules that all BNPL firms must adhere to. The report is a possible extension of CFPB Director Rohit Chopra’s former FTC focus on data monetization and large tech consolidation and reflects another step in the CFPB’s recent scrutiny of comprehensive credit reporting to bureaus and “junk fees.”
Please view the report for more information.