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Financial Services Law Insights and Observations

CFPB orders companies to submit BNPL information

Federal Issues CFPB Agency Rule-Making & Guidance Consumer Finance Buy Now Pay Later Of Interest to Non-US Persons CFPA

Federal Issues

On December 16, the CFPB issued a series of orders to five companies seeking information regarding the risks and benefits of the “buy now, pay later” (BNPL) credit model. BNPL is a “fast-growing” form of deferred payment that permits a consumer to divide a purchase into smaller installment payments, which are usually four or less and are often with a down payment of 25 percent due at the time of checkout. The Bureau issued the orders under Section 1022(c)(4) of the Consumer Financial Protection Act (12 U.S.C. § 5512(c)(4)), which, as part of the agency’s rulemaking authority, authorizes it to “monitor consumer financial markets and enables the agency to require market players to submit information to inform this monitoring.” The Bureau stated that it is “concerned about accumulating debt, regulatory arbitrage, and data harvesting in a consumer credit market already quickly changing with technology.” The Bureau expects to “publish aggregated findings on insights learned from this inquiry” and intends for the orders “to illuminate the range of these consumer credit products and their underlying business practices.”

The Bureau made available an example order that contains 20 requests seeking various information and data on several topics, including: (i) “Business Model/Metrics”; (ii) “Loan Performance Metrics”; (iii) “Consumer Protections”; (iv) “User Contacts and Demographics”; and (v) “Data Harvesting.” With respect to data harvesting, the CFPB noted that “[a]s competitive forces pressure the merchant discount, lenders will need to find other sources of revenue to maintain growth and profitability,” and the Bureau “would like to better understand practices around data collection, behavioral targeting, data monetization and the risks they may create for consumers.” The Bureau also noted that as part of the inquiry, it is collaborating with Australia, Sweden, Germany, and the UK (specifically, the Financial Conduct Authority), and will additionally be coordinating with the rest of the Federal Reserve System, and its state partners.

The same day, the Bureau issued a blog post for consumers on common risks to be aware of before using a BNPL loan. The blog noted, among other cautions, that: (i) “BNPL products often carry fees”; (ii) “[y]our loan repayment agreement is with the BNPL lender rather than the retailer”; (ii) “BNPL loans have fewer protections than credit cards”; and (iii) “[m]ost BNPL lenders don’t report payments to the major credit reporting companies,” nor “generally perform hard credit inquiries when deciding whether or not to give you the loan.”