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Financial Services Law Insights and Observations

CFPB says BNPL needs standardized credit reporting

Federal Issues CFPB Consumer Finance Buy Now Pay Later Credit Reporting Agency Credit Scores

Federal Issues

On June 15, the CFPB published a blog post calling on the Buy Now Pay Later (BNPL) industry to establish standardized codes and formats for furnishing information to credit reporting agencies that take into account the unique characteristics of these short-term, no-interest consumer credit products. Citing to the rapid growth within the BNPL industry, the Bureau stressed the need for standardization in how BNPL debts are reported on consumers’ credit reports. According to the Bureau, the three major credit reporting agencies have different policies for handing positive and negative reports on BNPL transactions in consumers’ core credit files. Moving to a more standardized approach would “facilitate the consistent and accurate furnishing of BNPL payment information” the Bureau said, noting that the agency “believes that when BNPL payments are furnished it is important that lenders furnish both positive and negative data.” Consumers who pay on time and may be seeking to build credit should receive the benefits of making timely payments on their BNPL debts, the Bureau said, explaining that this may also impact lenders seeking to understand how much debt a consumer is carrying.

The Bureau stressed it will continue to monitor the progress of BNPL lenders, credit reporting agencies, and credit scoring companies, and said it plans to “revisit this issue as part of a broader report on the industry stemming from our market monitoring order and responses to a public request for comments.” The Bureau is currently conducting an industry review, which includes a series of orders sent last December to five companies seeking information on the risks and benefits of the BNPL credit model (covered by InfoBytes here).