WASHINGTON – More than 75 consumer, housing, civil rights, legal services, faith, community, small business, student borrower, and public interest organizations have submitted a joint comment letter to the Consumer Financial Protection Bureau (CFPB) concerning buy now, pay later (BNPL) credit products.
In the letter, the groups, which include the National Consumer Law Center, the Consumer Federation of America and the Center for Responsible Lending, said they are “alarmed by the lack of regulation of this credit product,” which, as CUToday.info has reported, has been exploding in use. The organizations are urging the CFPB to view BNPL products as credit cards covered by the Truth in Lending Act (TILA), to start supervision of this market, and to look out for practices that harm consumers.
“BNPL products have largely evaded oversight by federal and state regulators,” the letter states. “Although these products could have a place in meeting consumer needs if they operate as promised, they pose a risk to consumers and should be covered by basic consumer protections.”
The List of Concerns
BNPL, the groups said, may provide some consumers with an affordable way to finance purchases, but the BNPL credit also presents cause for concern. The groups said the concerns include:
- A lack of meaningful underwriting for a consumer’s ability to repay, which could lead to unmanageable debt
- Hidden fees and absence of clear disclosures; problems with disputes and refunds; confusing payment schedules for multiple purchases
- Deceptive claims about credit building or potentially negative impact on credit reporting; and debt collection issues
‘Enticing Marketing’
“Marketing of Buy-Now-Pay-Later credit is enticing, with promises of instant approval and no impact on a consumer’s credit,” the letter continues“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 letter notes BNPL options have increased to an all-time high of eight-million users by December of 2021.
The Recommendations
In the letter the groups are urging the CFPB to:
- Apply credit card protections of the Truth in Lending Act (TILA), including the provisions of the Credit Card Accountability Responsibility and Disclosure (CARD) Act. Applying credit card rules to BNPL credit would provide consumers with basic protections, such as dispute and chargeback rights, cost transparency, uniform disclosures and statements, reasonable penalty fees, and underwriting for a consumer’s ability to repay.
- Issue a larger participant rule to bring the BNPL market (along with other installment loan markets) within the CFPB’s supervision.
- Prevent or take action against unfair, deceptive or abusive acts and practices (UDAAPs) and ensure compliance with fair lending laws.
- Enforce the Electronic Fund Transfer Act’s ban on compulsory repayment of credit by preauthorized electronic fund transfer.
- Conduct research on the impact of the BNPL market on consumers and on their credit reports.
A longer, more detailed comment was also submitted by Center for Responsible Lending, Consumer Federation of America, and National Consumer Law Center.
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