CFPB’s Buy Now, Pay Later report offers regulatory framework, but no sweeping overhaul – Digital Transactions

A long-awaited report from the Consumer Financial Protection Bureau offers suggestions on how regulation could help the industry buy now, pay later, but does not recommend a thorough review of its practices.

From risks As noted in the “Buy Now, Pay Later: Market Trends and Consumer Impacts” report released on Thursday, some BNPL providers are asking their consumer agents to “evade certain consumer loan requirements “. The CFPB noted what it sees as a lack of standardized information, such as the cost of credit, information required by Regulation Z, which standardizes how that cost is disclosed to consumers.

The report also noted disparate dispute resolution policies. “Most of the BNPL lenders surveyed are currently not complying with the credit dispute resolution provisions of Regulation Z and consumers are sometimes required to pay disputed loan installments pending resolution of the dispute,” the report said. . Other issues are what the CFPB called mandatory use of automatic payment, multiple payment representations and late fees. Other issues encountered include data collection and overstretching when consumers may be taking out multiple BNPL loans.

Moore: “The report clearly attempts to fill those gaps through which fintechs have operated.”

Rohit Chopra, director of the Consumer Financial Protection Bureau, said the agency would begin to identify “potential interpretative guidance or rules to be issued in an effort to ensure that Buy Now, Pay Later businesses adhere to many of the basic protections that Congress has already established credit cards.” In what could lead to further regulation of the BNPL industry, the agency will also identify data monitoring practices BNPL credit providers use, seek other means of BNPL-appropriate credit reporting practices, and insist that BNPL providers be “subjected to appropriate supervisory reviews, just as credit card companies are credit,” Chopra said. The CFPB launched its request in December.

While regulators will continue to investigate the BNPL industry, at least one observer doesn’t see a wholesale realignment in sight. “It’s a little disappointing,” Eric Grover, director of Intrepid Ventures, a financial services consultancy, told DDigital Transactions News. “I think Chopra was looking for some blatant behavior to demonize these guys and clearly it’s not there,” Grover says. While acknowledging issues like disclosures and automated payments, Grover doesn’t view the report as a major impetus for a new rule or regulation.

If standard disclosures, such as those already in place for credit cards, and improvements to automated payments are needed, Grover does not anticipate that they would harm BNPL suppliers. Apart from that, however, suppliers could be affected.

At least one major BNPL supplier, Affirm Inc., regards the report rather positively. “CFPB’s report on BNPL released today is a big step forward for the honest finance and transparency we have been championing at #Affirm for over a decade,” tweeted Max LevchinAffirm Founder and Managing Director.

Grover: “I think Chopra was looking for some blatant behavior to demonize these guys and clearly it’s not there.”

In a statement, Affirm said: “Today represents a major step forward for consumers and honest finance, and we are encouraged by the findings of the CFPB following their review. We will continue to engage with all of our stakeholders as we pursue our mission to provide honest financial products that improve lives. »

Klarna AB, however, challenged the regulation of BNPL products in the same way as credit cards. “Low-cost, low-risk, interest-free products like BNPL should fundamentally not be regulated in the same way as high-cost credit products that rely on consumer fees and revolving debt,” the statement said. Klarna. “As a licensed European bank, Klarna is committed to financial well-being and consumer protection through industry innovation and proportionate legislation.”

And the Financial Technology Association, a Washington, DC-based trade group, found the report informative. “The fact is, consumers are choosing Buy Now Pay Later as a competitive alternative to high-interest credit products that trap them in cycles of debt,” Penny Lee, chief executive of FTA, said in a statement. “We look forward to continuing to work with regulators like the CFPB to advance positive consumer outcomes.”

Some regulation may be needed, suggests Ariana-Michelle Moore, retail banking and payments adviser at consultancy Aite-Novarica Group.

“I think this becomes necessary as consumers increasingly use BNPL,” Moore said in an email message. “If they mimicked the old layaway programs, where a consumer uses the alternative loan for a single purchase, then no. It wouldn’t be necessary. But BNPL mimics the traditional revolving loan/credit product very well, because the consumers seek to use this method of payment for more and more purchases, from merchants and/or lenders.

There are gaps in the interpretation of how existing regulations apply to BNPL products, she says. “The report clearly attempts to fill these gaps through which fintechs have operated,” she says. “So yes, it’s time for regulators to review these programs and subject them to some, if not all, of the same standards that they apply to other lenders (including issuers).”

If that happens, Moore doesn’t expect it to detract from BNPL’s “true consumer benefit: enabling consumers to make small purchases that they otherwise wouldn’t be able to make.”

The central call of BNPL products is the speed of the authorization request and decision, especially in mobile commerce, where seconds count. Additional disclosure requirements can impede this flow, which could cause consumers to abandon the checkout process.

“For example, will disclosures have to be presented at the point of sale, could this slow down transaction times at the register? (I think a close example is asking for a store card at point of sale. Definitely slower than a swipe),” Moore adds.

Some industry observers and providers were not shocked by the CFPB report.

As zipper in a statement: “We are delighted that the CFPB has recognized the value that BNPL brings to consumers, including access to credit, ease of use and lower costs, especially in difficult economic times. The CFPB’s observations seem balanced, reasonable and fair.

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