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Education

“lead generation” acquisition model. Lead generation
is one of the primary methods through which certain
brands receive high-traffic app placements. Through
lead-generation fees—which the CFPB describes as “es-
sentially a form of disguised advertising”—merchants
pay affiliate fees to the lender for each purchase that
originated from the preferred brand placement. This
adjustment has the potential for the most far-reaching
consumer impact, as it strengthens the breadth and
depth of the lender’s relationship with the borrower,
and thus increases the likelihood of habitual BNPL us-
age.

There has been a 300 percent increase in the number of
consumers who have taken out a BNPL loan since 2018.
With such an increase in usage comes an increase in
risks attributable to underdeveloped consumer protec-
tion, leading to predatory practices. For example, pro-
viders offering these products may opine that they are
not required to provide consumers with the same dis-
closures of interest and fees and are not subject to the
same dispute resolution protections or return/refund
procedures as other credit products. Some providers
even claim that their products are not loans or credit
products at all, but instead refer to them as payment
plans.

The CFPB also raised concerns regarding late fees and
transactional fees, which the lenders collect from con-
sumers, as well as inconsistent BNPL furnishing stan-
dards. While the CFPB limited its review to nonbank
tech companies offering BNPL, BNPL providers will
need to adequately prepare for increased regulatory
oversight and supervisory examinations to come.
Evolution needed

As BNPL practices accelerate in 2023, merchants will
need to consider offering BNPL options to compete
in the competitive, ever-changing consumer market.
Correspondingly, BNPL providers and banks will also
need to assess required capabilities, compliance and
risk, consumer experience, vertical focus, competi-
tiveness of offering, and other factors. BNPL provid-
ers, merchants and banks must evolve and understand
their compliance requirements in the complex regula-
tory landscape.

Bill M. Petti is a post-bar law clerk at Global Legal Law Firm. Bill grad-
uated cum laude from California Western School of Law with four
American Jurisprudence awards. Prior to joining Global, he clerked
for the United States Attorney’s Office in both the Affirmative Civil
Enforcement Division and Civil Litigation Division. Bill also interned
for the United States Securities and Exchange Commission during
his second year of law school and assisted with several high-profile
investment adviser examinations. He passed the July 2022 California
Bar Examination on his first attempt, but is still pending approval for
swearing in. Once he is sworn in, Bill will join Global Legal Law Firm
as an associate. Contact Global at info@attorneygl.com.
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