WASHINGTON—Concerned over risks related to buy now, pay later (BNPL) products, NAFCU and CUNA have each sent a letter to the CFPB in response to the Bureau’s request for comment (RFC) regarding the fast-growing offerings.
NAFCU Regulatory Affairs Counsel James Akin stated the trade association and its members have “serious concerns regarding the utilization of ‘Pay in 4’ loans by unsupervised fintech companies.”
Specifically, Akin outlined potential risks of the Pay in 4 model, including the inability of consumers to build credit and risk of damage to their credit scores, the outsized use of BNPL by consumers in poor financial health, the misleading marketing and inadequate disclosures resulting in unexpected fees, and the lack of transparency regarding use of consumer data.
“NAFCU requests that the Bureau release a comprehensive report regarding its findings from the December market monitoring orders and this RFC,” wrote Akin. “Furthermore, to the extent that these findings reflect a deliberate intent on the part of ‘Pay in 4’ BNPL providers to circumvent regulation and target financially vulnerable consumers, NAFCU urges the Bureau to take steps to ensure that these unregulated lenders institute adequate consumer protection practices.”
Additional Recommendations
In addition to requesting the Bureau engage in consumer education regarding the potential risks associated with “Pay in 4” products, Akin also requested that the Bureau consider several updates to Regulation Z that would level the playing field in the BNPL market to increase the availability of consumer credit while maintaining consumer protections.
“The addition of more credit unions, with their culture of compliance and consumer protection, to the BNPL market, can only serve to improve the standards and practices of BNPL as a whole,” stated Akin.
CUNA: Regulation Needed’
The Consumer Financial Protection Bureau should carefully examine and regulate buy now, pay later” companies, CUNA wrote.
“While credit unions welcome innovation in the market, we are concerned the exponential growth of BNPL products has outpaced prudent regulatory oversight and could ultimately result in consumer harm,” the letter reads. “In addition, the absence of effective oversight creates an uneven playing field to the material disadvantage of traditional lenders…Credit unions and other well-established financial service providers are heavily regulated for safety and soundness and consumer protection regulatory compliance. This is not always the case for companies offering BNPL products.”
Consumers spent nearly $100 billion in purchases using BNPL programs in 2021, up from $24 billion in 2020, according to research, CUNA noted.
Other Recommendations
CUNA’s letter also encourages the CFPB to:
- Evaluate disclosures of terms and fees associated with BNPL and if they are sufficient to inform consumers of their payment obligations, potential penalties associated with late payments, and the potential pitfalls of using BNPL
- Study how BNPL companies assist consumers in keeping track of their payment schedules, how they account for BNPL obligations from other providers, and how they are approaching the issue of credit reporting
- Closely evaluate the BNPL companies’ data security and privacy practices to ensure that consumers are thoroughly protected
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