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Financial Services Law Insights and Observations

CFPB highlights risks associated with BNPL products

Federal Issues CFPB Payments Consumer Finance Buy Now Pay Later Dodd-Frank

Federal Issues

On August 4, the CFPB released a report highlighting risks associated with new product offerings that the agency claimed blur the line between payments and commerce. The report examined the development of new capabilities—like “super apps,” buy now, pay later (BNPL), and embedded commerce—that have the potential to streamline payments, facilitate commerce, and enhance user experience, but may also create opportunities for companies to aggregate and monetize consumer financial data. With respect to “super apps,” the Bureau warned that these services have “morphed” into a “bank in an app” model, providing a “wide array of financial, payment and commerce functions within a single app.” These financial services super apps may seem to be more convenient than having multiple relationships with different organizations, the Bureau said, but cautioned that using these products may limit consumer product and service choice. “While consumers can opt to use a payment offering outside an app, such super apps create the potential for providers to steer consumers to specific solutions and/or limit access to some products.”

The report also raised concerns about tech firms offering their own lending or BNPL products. The Bureau pointed out that BNPL options, which provide unsecured short-term credit allowing consumers to split purchases into four equal interest-free payments at the point of sale, have “soared in recent years” as a popular alternative to credit cards. The Bureau noted it is “carefully focused on the shift toward real-time payments in the United States,” and is “seeking to mitigate the potential consequences of large technology firms moving into this space.”

The Bureau further stressed it is “carefully monitoring the payments ecosystem as part of a multifaceted effort to promote fair, transparent, and competitive markets for consumer financial services,” and said it is currently working on Dodd-Frank Act rules that would give consumers more control over the personal financial data that they choose to share with finance and payment apps. The Bureau also stated that it is “assessing new models of lending integrated with payments and ecommerce, such as BNPL,” and plans to issue a report on its findings and make a determination as to whether any regulatory interventions are appropriate. Last year, the Bureau issued a series of orders to five companies seeking information regarding the risks and benefits of the BNPL credit model (covered by InfoBytes here).