The CFPB has issued a new report ,“Consumer Use of Buy Now, Pay Later: Insights from the CFPB Making Ends Meet Survey,” that looks at the financial profiles of consumers who use buy-now-pay-later (BNPL) products. 

The report uses data from the CFPB’s 2022 Making Ends Meet survey (responses of 2,036 consumers) and the CFPB’s Consumer Credit Panel.  Key findings discussed in the report include:

  • BNPL is mostly used by consumers with substantial access to and use of other forms of credit that are generally much more expensive than BNPL for the typical user, thus making BNPL appear to be a less expensive borrowing option.
  • While many BNPL borrowers use the product without noticeable indications of financial distress, BNPL borrowers were, on average, more likely to be highly indebted, revolve on their credit cards, have delinquencies on traditional credit products (such as credit and retail cards, personal loans, auto loans and student loans), and use high-interest financial services such as payday, pawn, and overdraft compared to non-BNPL borrowers.
  • BNPL borrowers are more likely to also have traditional credit products but have lower liquidity and savings compared to non-BNPL borrowers.
  • BNPL borrower typically had lower credit scores than non-borrowers.  Because borrowers with lower credit scores face higher interest rates on traditional credit products, BNPL, which offers no interest credit, is an attractive alternative.

In the report, the CFPB acknowledges a significant limitation to its findings.  Although its findings “paint a consistent picture of BNPL borrowers exhibiting high levels of financial distress that are statistically higher than non-users,” the CFPB observes that “markers of financial distress were apparent for these consumers even prior to the widespread usage of BNPL starting in 2019.”  As a result, the CFPB is “unable to distinguish whether consumers in distress are more likely to use BNPL, for instance, in order to substitute away from high-interest loans that they already have, or whether BNPL use leads consumers to increase borrowing using other non-BNPL products.”  According to the CFPB, more research is needed to determine “whether BNPL improves the financial health of consumers or exacerbates these differences.”

In September 2022, the CFPB issued a report on BNPL products in which it concluded that BNPL products created financial risk for consumers.  It also indicated that it is was looking at potential new interpretive guidance or rules (presumably using its UDAAP authority) and would take steps to subject BNPL lenders to supervisory examinations (presumably using its risk-based supervisory authority).  In light of the CFPB’s acknowledgment in the new report that additional research could in fact show that BNPL is beneficial to consumers’ financial health, perhaps the CFPB should conduct that research and revisit the conclusions in its September 2022 report before launching into rulemaking or taking other actions directed at BNPL products.