The CFPB has issued its long-awaited report on buy-now-pay-later (BNPL) products. Titled “Buy Now, Pay Later: Market trends and consumer impacts,” the report is based on the information the CFPB received from the five providers of BNPL products to whom it issued market monitoring orders in December 2021 and comments received by the CFPB in response to its January 2022 request for public comments to inform its inquiry into BNPL. The CFPB’s press release indicates that the report is also based on “deidentified submissions in the public CFPB complaint database and publicly available financial filings and other source material from the five firms who received the Bureau’s market monitoring orders.” Director Chopra also released prepared remarks on the report.
The body of the 83-page report has four primary sections:
- “Consumer metrics” which describes BNPL from the consumer’s perspective, beginning with the point of acquisition (under both the merchant acquisition model and the app-driven acquisition model), continuing to application and underwriting processes, and concluding with policies and procedures for account management and loan repayment (such as use of autopay, late fees, and handling of disputes and returns);
- “Market metrics and trends” which describes BNPL from the lender’s perspective and looks at origination volumes and usage rates, unit margins (or net transaction margins), and general business trends (consisting of tightening underwriting standards, higher consumer fees, and increased focus on the app-driven acquisition model, with a detailed discussion of the major consumer-facing differences from the merchant partner model);
- “BNPL and consumer financial health” which discusses consumer benefits and overextension risks (consisting of loan stacking and sustained usage); and
- “Takeaways and risks” which in addition to overextension risks, discusses “discrete consumer harms”(consisting of lack of standardized disclosures, dispute resolution challenges, compulsory use of autopay, multiple payment re-presentments, and late fees) and data harvesting.
In its press release, the CFPB lists the actions that it intends to take as a follow up to the report. (These actions are also listed in Director Chopra’s remarks.) The actions consist of:
- To address discrete consumer harms, the CFPB “will identify potential interpretive guidance or rules to issue with the goal of ensuring that [BNPL] lenders adhere to many of the baseline protections that Congress has already established for credit cards.” The CFPB “will also ensure [BNPL] lenders, just like credit card companies, are subjected to appropriate supervisory examinations.”
- To address risk issues with data harvesting, the CFPB “will identify the data surveillance practices that [BNPL] lenders should seek to avoid.”
- To reduce the risk of borrower overextension, the CFPB “will continue to address how the industry can develop appropriate and accurate credit reporting practices.” (The CFPB also plans to take steps “to ensure that the methodology used by the CFPB and the rest of the Federal Reserve System to estimate household debt burden is rigorous.”)
In addition to discussing the report in subsequent blog posts, we will be holding a webinar on the report that will include a close look at the CFPB’s follow up actions described in the press release and Director Chopra’s remarks and their implications for industry. Webinar details will be provided soon.