Consumer Bureau Opens Inquiry into Buy Now, Pay Later Lending

Action Follows Request from Senators, Urging from Consumer Groups

Andy Spears
4 min readDec 16, 2021

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The Consumer Financial Protection Bureau (CFPB) announced today it is begin to gather information from Buy Now, Pay Later (BNPL) services in order to assess the need for further regulation of the popular consumer finance products.

The orders to collect information on the risks and benefits of these fast-growing loans went to Affirm, Afterpay, Klarna, PayPal, and Zip. The CFPB is concerned about accumulating debt, regulatory arbitrage, and data harvesting in a consumer credit market already quickly changing with technology.

“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 gets the debt immediately too,” said CFPB Director Rohit Chopra. “We have ordered Affirm, Afterpay, Klarna, PayPal, and Zip to submit information so that we can report to the public about industry practices and risks.”

Buy now, pay later credit is 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.

Consumer advocates have raised some concerns about potential risks of these products.

Lauren Saunders of the National Consumer Law Center (NCLC) says of these products:

Buy-now-pay-later products, if affordable and truly free to the consumer, may help consumers manage larger purchases without the long-term debt and high costs of credit cards. But some BNPL products may have deceptive and abusive profit models built on the expectation of late fees from struggling consumers.

These concerns led a group of Senators to call on the CFPB to take action to determine the risks of BNPL and to recommend a regulatory path forward.

In a letter sent to the CFPB and led by Senator Jack Reed of Ohio, six U.S. Senators said:

“While the emergence of BNPL as affordable small-dollar…

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Andy Spears

Writer and policy advocate living in Nashville, TN —Public Policy Ph.D. — writes on education policy, consumer affairs, and more . . .