State AGs urge CFPB to prioritize consumers during inquiry into BNPL industry

State Issues State Attorney General CFPB Buy Now Pay Later Consumer Finance

On March 25, a coalition of state attorneys general, led by Illinois Attorney General Kwame Raoul, announced that they are urging the CFPB to ensure that “buy-now-pay-later” (BNPL) lenders are not engaging in practices that trap consumers in a cycle of debt. As previously covered by InfoBytes, in December 2021, the CFPB issued a series of orders to five companies seeking information regarding the risks and benefits of the BNPL credit model. In the letter, the state AGs requested that the CFPB prioritize robust consumer protections during its review of the BNPL loan industry, and noted that they are concerned that BNPL loans and services appeal to borrowers who already struggle to make ends meet or owe on other debts. The letter also noted the AGs’ concern that BNPL lenders can designate their loans to evade federal and state consumer protection and credit laws, and may not adequately disclose lending and repayment terms. The letter also pointed out that, like predatory lending products, BNPL loans may contain terms and features that are known to trap people in cycles of debt. Among other things, the state AGs urged the Bureau to: (i) explore “whether and how BNPL providers ensure consumer rights and protections, disclosure of fees, charges, and other essential terms to consumers, as well as how they comply with general requirements to refrain from unfair, deceptive, and abusive acts and practices”; (ii) assess “what steps, if any, BNPL providers take in considering ability-to-repay and the types and sources of information they rely on”; (iii) study “the emerging role of credit bureaus in the BNPL marketplace”; (iv) monitor partnerships “between BNPL providers and for-profit schools and online course providers” and “consider issuing guidance and rulemaking clarifying regulations for BNPL credit to finance education”; and (v) review the policies, procedures, and practices of BNPL providers regarding debt collection “to ensure that providers comply with all applicable consumer protections.”