WASHINGTON–During a House hearing titled “Buy Now, Pay More Later? Investigating Risks and Benefits of BNPL and Other Emerging Fintech Cash Flow Products,” a representative of one national consumer group shared with Congress a number of concerns over the rapidly growing BNPL solutions.
Lauren Saunders, associate director of the National Consumer Law Center, told the House Committee on Financial Services’ Task Force on Financial Technology during her testimony the organization has concerns beyond just buy now, pay later offerings, but also over earned wage access, overdraft and cash advance apps, as well as peer-to-peer loans that fall outside of or “evade consumer protection laws for credit and have potentially deceptive and abusive pricing models.”
Sanders said in her written testimony that while some new types of financing products may have a place in meeting consumers’ needs, other fintech liquidity products appear primarily to be designed to evade consumer protection laws.
“Shiny fintech garb does not remove the need for basic consumer protections to ensure that credit is affordable, responsible, transparent, and fair,” Sanders said. “We must keep a close eye on how products evolve, as products may not stay free or low-cost and the ultimate business model may not always be what it appears.”
The Issues Raised
Among the issues raised in Sanders’ testimony:
- “Buy-now-pay-later products, if affordable and truly free to the consumer, may help consumers manage larger purchases without the long-term debt and high costs of credit cards. But some BNPL products may have deceptive and abusive profit models built on the expectation of late fees from struggling consumers.”
- “Earned wage access products are a form of payday loan – wage advances repaid on payday – and should be regulated as credit,” Saunders said, adding that free early wage access, if used sparingly, may help workers, but more study is needed. “Regulators should not carve loopholes in lending laws for fee-based products, which can be more expensive than they appear and frequently lead to a cycle of reborrowing that does not ultimately provide useful liquidity. Instead of encouraging employees to spend next week’s pay today, employers should focus on savings programs, affordable small dollar installment loans, regular, predictable schedules, and paying a living wage…Fake earned wage advance products that are offered directly to consumers have no direct connection to earned wages. These payday cash advances have most of the negative features and impacts of standard payday loans.”
- “Overdraft and cash advance apps and loans that collect “tips” have an evasive and deceptive business model that attempts to disguise finance charges and to evade interest rate limits, including the Military Lending Act’s 36% cap, and other lending laws.