Consumer advocate groups urge CFPB to regulate BNPL products like credit cards, cite 'cause for concern'

More than 75 groups sent a letter the CFPB, urging it to begin regulating buy now, pay later providers like credit card companies. (iStock)

More than 75 banking and consumer advocate groups penned a joint letter to Consumer Financial Protection Bureau (CFPB) Director Rohit Chopra on March 28, urging him to increase regulations for buy now, pay later (BNPL) products that would help protect consumers.

BNPL providers like Affirm, Klarna, Afterpay and PayPal allow shoppers to split their online purchases into multiple smaller installments at checkout. The payments are interest-free as long as they're paid on time, and consumers can be subject to late fees and penalties if they aren't.

The groups said in their letter that the CFPB's probe into BNPL programs was welcomed, but that they were "alarmed by the lack of regulation of this exploding consumer credit product market." They added that while BNPL products are useful to consumers, they still remain risky. 

"We urge the CFPB to view BNPL products as credit cards covered by the Truth in Lending Act (TILA), to enact a larger participant rule to supervise this market, and to look out for practices that harm consumers," they said. 

If you have outstanding debt accumulated through BNPL services, a personal loan could help in paying it down while avoiding fees and penalties. Visit Credible to find your personalized interest rate without affecting your credit score.

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BNPL could cause consumers to accumulate unaffordable debt, groups say

Although BNPL providers help consumers afford their purchases by breaking them down into smaller payments, the lack of regulatory oversight has many stakeholders concerned. The groups explained in their letter to Chopra that unmanageable debt, hidden fees and absence of clear disclosures could lead to bigger issues.

"Marketing of buy now, pay later credit is enticing, with promises of instant approval and no impact on a consumer’s credit," the letter said. "However, many providers are not conducting meaningful underwriting to assess a borrower’s ability to repay, allowing consumers to accumulate unaffordable amounts of debt."

The National Community Reinvestment Coalition (NCRC) also sent a letter to Chopra, stating it was "concerned about the impact of these relatively unregulated services" and urged the CFPB to view BNPL products as credit cards covered by the Truth in Lending Act (TILA). The NCRC is a nonprofit association comprised of more than 600 organizations that include civil rights groups, faith-based organizations, government agencies, women-owned business associations and more.

In addition, NCRC President and CEO Jesse Van Tol said in a statement that the current state of the BNPL industry leaves it a "Wild West" without oversight.

"Buy Now Pay Later is understandably seductive to consumers and retailers alike – but when you drill down on how it actually works, it is obvious that it must be covered by traditional and effective consumer protection laws," Van Tol said "This new finance product is spreading too quickly to remain a ‘Wild West’ without nationwide oversight – and we applaud the CFPB for engaging with community and industry leaders to protect Americans from being harmed."

If you're unsure about using a BNPL service and interested in financing, you could consider taking out a personal loan. Visit Credible to compare multiple lenders at once and choose the one with the best interest rate for you.

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BNPL services continue to rise in popularity among consumers 

BNPL services are increasing in popularity, as the number of monthly users reached an all-time high of more than eight million in December 2021, according to payments news and trends outlet Payments Dive. The publication added that although the holiday season led to a sharp rise in BNPL users, "its novelty may have begun to wear thin."

A review of the CFPB’s consumer complaints database by independent consumer group U.S. PIRG Education Fund revealed that BNPL services could have hidden costs. The study revealed consumers have complained to the CFPB about hidden fees, high interest rates and problems if they come into debt collection.

Data also reveals many consumers are going beyond their means to make these purchases. About 40% of BNPL users said they used the service to make purchases that otherwise would not have fit in their budget, according to Insider Intelligence. And those who have seen their bank account fall into overdraft were more than twice as likely to have used BNPL services, according to Morning Consult.

If you have faced overdraft fees or accumulated debt because of BNPL services, you could consider paying it off using a personal loan. Contact Credible to speak to a loan expert and get all of your questions answered.

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