CFPB opens investigation into buy now, pay later credit programs


With the rise of Buy Now, Pay Later credit programs, the CPFB is opening an investigation to make sure they aren’t harming consumers. (iStock)

Five credit companies were investigated by the Consumer Financial Protection Bureau (CFPB) on December 16, 2021 to examine the risks associated with call now, pay later (BNPL) options.

BNPL is a credit option that allows a purchase to be split into smaller installments – typically no more than four interest-free payments – with a small down payment of around 25% at checkout. The app typically requires little consumer information and may include late fees.

Orders have been sent to Affirm, Afterpay, Klarna, PayPal and Zip to collect information on the risks and benefits of BNPL. The CFPB said it was concerned about debt build-up, product regulation and data collection.

“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 also gets the debt immediately,” said Rohit Chopra, director of the CFPB. “We have directed Affirm, Afterpay, Klarna, PayPal and Zip to submit information so that we can report to the public on industry practices and risks.”

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CFPB seeks to prevent damage to consumers

Experts in the banking industry say the CFPB investigation is a way for it to educate itself on BNPL use and to avoid harming consumers.

“The use of ‘Buy now, pay later’ credit has exploded, so it’s important that we understand the impacts of this debt. By opening this investigation, the Office of Consumer Affairs is taking an important first step in learning about the industry and toward preventing harm to consumers, ”said Marisabel Torres, California Policy Director at the Center for Responsible Lending (CRL) .

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Merchants authorize BNPL so consumers can spend more

Merchants typically pay a fee of around 3% to 6% of the purchase price to BNPL companies to allow consumers to use it on their site. This is because consumers often spend more money when using BNPL, according to the CFPB.

The CFPB said it was concerned BNPL could lead consumers into debt quickly for small, daily discretionary purchases.

“If a consumer makes multiple purchases across multiple calendars with multiple businesses, it can be difficult to know when payments are scheduled,” CFPB said. “And when there is not enough money in a consumer’s bank account, it can potentially result in charges to both the consumer’s bank and the BNPL provider. getting these loans, consumers may end up spending more than expected. “

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