CFPB launches investigation into “buy now, pay later” credit
Last week the Consumer Financial Protection Bureau did announced that there are a number of assignments to five companies that offer consumers a “buy now, pay later” loan and instruct them to provide information about their loan programs to the agency. The orders were placed with Affirm, Afterpay, Klarna, PayPal and Zip. The CFPB said it issued the orders because of concerns about debt accumulation, regulatory arbitrage and data collection in a developing consumer credit market.
Speaking of the announcement, CFPB Director Rohit Chopra said, “Buy Now, Pay Later is the new version of the old layaway plan, but with modern, faster twists and turns where the consumer gets the product right away, but also gets the debt right away.”
After collecting information from these companies, the CFPB plans to release aggregate results, sharing the findings from the research to “shed light on the range of these consumer credit products and their underlying business practices”.
The research focuses on three key areas.
First, the CFPB is concerned about how consumers are doing Accumulation of debt. The CFPB stated that while old-style installment loans were typically used for the occasional large purchase, consumers can now become regular users of “buy now, pay later” programs. The CFPB said, “Because these loans are easy to get, consumers may end up spending more than expected.” The CFPB also raised concerns that it could be difficult for consumers to keep track of when payments are due for multiple loans and that if they cannot afford the payments they end up paying additional fees from both the consumer’s bank and the bank could pay from the loan provider.
Second, the CFPB fears that some lending firms “buy now, pay later” Regulatory arbitrage – in other words, they may not adequately assess what consumer protection laws apply to their products. The CFPB said some of the loans on offer may not have the necessary disclosures or simply may not offer the protection consumers get when making purchases with a credit card.
Finally, the CFPB also examines companies’ data collection practices. In particular, the CFPB would like to understand companies’ practices in the areas of data collection, behavioral targeting, and data monetization so that it can assess the risks that Data harvest can create for consumers.
Marketers often offer consumers the option to purchase products on credit through third party credit providers. With the CFPB scrutinizing its practices, now is a good time for marketers to see how these loan offers are also presented on their websites to ensure that they are presented in accordance with applicable loan advertising laws and that this is the case is otherwise not presented in a misleading way.
“Buy Now, Pay Later is the new version of the old layaway plan, but with modern, faster twists where the consumer gets the product right away, but also gets the debt right away” – Rohit Chopra, Director, CFPB