Friday, March 10, 2023
But it remains unclear whether regulations specific to BNPL are necessary, the consumer watchdog agency said.
"A common misconception of Buy Now, Pay Later borrowers is that they lack access to other forms of credit," stated CFPB Director Rohit Chopra. "Our analysis shows that these borrowers are more likely to use other credit products. Since Buy Now, Pay Later is like other forms of credit, we are working to ensure that borrowers have similar protections and that companies play by the same rules."
But Chopra and the CFPB stopped short of calling for outright regulation of BNPL, at least for now. "[M]any differences between BNPL borrowers and non-borrowers pre-date BNPL use," the report noted.
BNPL is a new twist on an old scheme—layaway plans. Only instead of having an item put on the shelf until its paid off, with BNPL the customer takes possession of the purchase and pays it off in equal installments over a set period of time, usually a month. The credit is free to consumers, provided all payments are made on time. Merchants pay fees to BNPL providers, typically in the range of 4 percent to 8 percent of the ticket total.
Generally, BNPL is not considered a loan, and thus the transactions are not covered by consumer credit laws.
The CFPB's report follows news out of the U.K. that regulators there plan to regulate BNPL companies. The Australian government also has said it intends to regulate BNPL firms.
BNPL took off during the pandemic, especially for ecommerce purchases, and it continues to grow. Research and Markets estimated the global BNPL market is growing at a compound annual rate of 28 percent.
In all, 17 percent of consumers with credit records had used BNPL in the year preceding the CFPB's research, which was conducted in 2022.
Here are further insights into BNPL users, as reported by the CFPB.
The CFPB also found that BNPL customers have substantially lower credit scores than non-customers. "Lower credit scores lead to higher interest rates on traditional credit products, which makes Buy Now, Pay Later loans with no interest an attractive alternative that many borrowers seek," the CFPB wrote.
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