Senators Call for Action to Protect Consumers using Buy Now, Pay Later Products

Senate Move Comes as Consumer Advocates Highlight Risk

A group of U.S. Senators led by Jack Reed of Rhode Island wrote a letter to the Consumer Financial Protection Bureau (CFPB) calling for closer scrutiny and better regulation of Buy Now, Pay Later (BNPL) products (such as Klarna and AfterPay).

The Senators noted:

“While the emergence of BNPL as affordable small-dollar credit has potentially provided an alternative to more costly forms of credit, these products also have the potential to cause consumer harm. Many BNPL providers structure these products in an effort to avoid certain consumer protection obligations under the Truth in Lending Act or the Military Lending Act, which generally apply to loans that are repayable in more than four installments or are subject to a finance charge. BNPL products generally do not receive all of the protections credit cards have, including those governing ability-to-repay, monthly statements, reasonable and proportional penalty fees, and the ability to raise merchant-related disputes.

Reed was joined by Senators Sherrod Brown of Ohio, Elizabeth Warren of Massachusetts, Chris Van Hollen of Maryland, Tina Smith of Minnesota, and Jon Ossoff of Georgia in calling for CFPB oversight of the BNPL products.

The call by these Senators comes as consumer groups have noted both the benefits to consumers and the…