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Education

Buy now, pay later is in Three areas of inquiry

the CFPB's crosshairs The CFPB is specifically concerned about:
• Debt accumulation: Layaway programs were
usually used to make the occasional large purchase,
but now consumers are quickly adopting BNPL for
everyday buying. This is especially true if consumers
download easy-to-use applications or install web
browser plugins. This can make it hard to track
when payments are scheduled if a consumer made
multiple purchases on multiple schedules with many
different merchants. If there is not enough money
By David Haber in a consumer’s bank account, the bank and BNPL
Global Legal Law Firm provider may be levied fees and other charges.
Consumers can quickly spend more than they
n Dec. 16, 2021, the Consumer Financial expected given the ease of getting these popular
Protection Bureau issued orders to five com- loans.
panies that offer buy now, pay later (BNPL)
O credit. The CFPB ordered Affirm, Afterpay, • Regulatory arbitrage: Consumer protection laws
Klarna, PayPal, and Zip to collect information about vary state by state and are updated regularly. Thus,
the risks and benefits of these loan programs. The con- many BNPL companies may not realize what laws
sumer credit market is rapidly changing with technology apply or the risks associated with breaking them.
advances, raising concerns about accumulating debt, data Some BNPL products do not provide disclosures
harvesting and regulatory arbitrage. required by laws in states where they operate.
Although the BNPL application looks similar to a
The CFPB issued the orders so it can report to the public standard online checkout, protections afforded by
about changing industry practices and risks. Similar to credit cards may not apply to BNPL programs. For
old layaway plans, BNPL lets consumers get products example, many BNPL companies do not provide
immediately, but it also puts them into debt right away. dispute resolution protections that many credit
cards give. Depending on the rules of the state in
An appealing product which they operate, different late fees and policies
apply, making it easy to violate applicable consumer
BNPL generally allows consumers to make purchases protection laws.
in small installments, typically four or less, many times
with a 25 percent payment required at checkout. The • Data harvesting: Consumer payment histories,
product usually comes with no interest, and the quick which are given to BNPL lenders, are valuable
application process requires little information. The five commodities in today’s data-driven market. Some
companies ordered to give information claim BNPL is a lenders have created closed-loop shopping apps with
safer alternative to credit card debt that serves consumers partners, often pushing certain brands and products
with bad credit histories. to younger customers. Lenders will undoubtedly seek
other sources of revenue to maintain profitability
Merchants like BNPL because consumers will often spend as mounting competitive forces pressure merchant
more on their products, justifying paying up to 6 percent discounts. The CFPB wants to understand practices
of the purchase price, a cost similar to interchange fees. for data collection and sales, behavior targeting and
Many merchants saw a noticeable increase in BNPL use the risks posed to consumers.
during the COVID-19 pandemic, which drove consumers
to electronic payments instead of cash. The CFPB claims BNPL has grown domestically and internationally, spurring
that the holiday shopping season saw explosive growth other countries to closely examine BNPL providers. The
in BNPL sales. Many savvy investors noticed this massive CFPB is working with international partners such as
growth, leading venture capital and technology companies Australia, Germany, Sweden, and the United Kingdom’s
to get into the game. Financial Conduct Authority. Merchants who offer BNPL,
and the electronic payments providers who support them,
The CFPB is required to monitor consumer financial can expect further inquiries as those programs continue
markets, and the law enables the agency to make to grow.
companies submit information to help monitor consumer
financial habits. Once the CFPB collects this information, David Haber is a senior associate with Global Legal Law Firm, which has
it will publish its findings. The orders are intended to cast years of experience tracking the legal developments in the electronic
new light on various consumer credit products and the payments space and helping clients develop strategies for various laws
business practices supporting them. and prevailing interpretations across the United States. Contact Global
at info@attorneygl.com.
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