CFPB: BNPL should be enforced like credit cards

The Consumer Financial Protection Bureau Financial said financial institutions that offer Buy Now, Pay Later (BNPL) services should treat them similar to credit card products. 

The CFPB made that assessment as part of the release of its first comprehensive report on BNPL products. 

The agency, which obtained data from Affirm, Afterpay, Klarna, PayPal and Zip, noted that they originated 180 million loans totaling more than $24 billion in 2021 – a tenfold increase from two years earlier. 

The CFPB also observed that customers could receive "uneven disclosures and protections."

BNPL “is a rapidly growing type of loan that serves as a close substitute for credit cards,” CFPB Director Rohit Chopra said in a press release tied to the report. “We will be working to ensure that borrowers have similar protections, regardless of whether they use a credit card or a [BNPL] loan.” 

Most BNPL loans range from $50 to $1,000, the agency found. Apparel and beauty merchants, which led the way when BNPL debuted, accounted for 59% of originations in 2021 (down from 80% in 2019). 

The CFPB also found that:

• Loan approval rates rose from 69% in 2020 to 73% last year
• 10.5% of unique users were charged at least one late fee in 2021, up from 7.8% in 2020. 
• Profit margins fell from 1.27% of the total amount of loan originated in 2020 to 1.01% last year

The agency raised three concerns when it comes to the product: inconsistent consumer protections, data harvesting and monetization and debt accumulation and overextension. 

The CFPB said it plans to “identify potential interpretive guidance or rules” to ensure that BNPL lenders stick to the same baseline protections established for credit cards. The agency also plans to identify the data surveillance practices that BNPL lenders should avoid.

The report's release came on the same day that the Center for Responsible Lending and the Consumer Bankers Association sent a letter to Chopra urging the CFPB to create a rule to expand the agency's oversight to fintech lenders that make installment loans.

The CFPB, in its release, said it "has authority to supervise any non-depository covered persons, such as a [BNPL] provider, in certain circumstances."