With BNPL growing rapidly, the CFPB is issuing a letter of formal notice requesting data from five companies – digital transactions
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The explosive increase in lending to tills that buy now, pay later sooner or later caught the attention of regulators, and on Thursday the other shoe fell with a letter sent by the Consumer Financial Protection Bureau to five leading BNPL firms was sent asking for information on their services. The five – Affirm Inc., Afterpay Ltd., Klarna AB, PayPal Holdings Inc. and Zip Co. – have until March 1st to respond to the order. Afterpay has agreed to be acquired by Block Inc. (formerly Square Inc.) in a $ 29 billion deal that is expected to close early next year.
the office Calls for data on three main problem areas, including the potential for overspending by consumers who rely too heavily on the easily accessible point of sale credit offered by the BNPL apps. “While the old installment loans were typically used for the occasional large purchase, people can quickly become regular users of BNPL for everyday purchase at their own discretion, especially by downloading the easy-to-use apps or installing the web browser plugins,” the regulator’s letter notes .
Other concerns are the potential for BNPL credit To fall consumer protection regulations that apply to other credit products. This opens up the possibility for lenders to collect and use data from BNPL transactions by consumers in ways that the CFPB does not allow for credit card and other credit transactions.
The agency’s order to the five major vendors follows a letter sent earlier this week by six U.S. Senators to Rohit Chopra, director of the CFPB, asking the agency to review BNPL products for launch initiate consumer protection. All six senators are Democratic members of the Banking, Housing, and Urban Affairs Committee.
BNPL has been around for years, but the number of providers has increased recently as consumers respond positively to the product in the wake of the pandemic. Speaking at the Money 20/20 in Las Vegas in October, Rick Cunningham, senior vice president of strategy and business development for Alliance Data Systems Corp. estimated the market potential at $ 100 billion, down from just $ 4 billion to $ 6 billion – Dollars have been loaned out until now.
The terms and conditions for BNPL loans can vary, but typically the loans are available instantly online or in-store and allow four interest-free installments over a six-week period. Given the rapidly growing popularity of BNPL with consumers, it’s “no surprise the CFPB is taking a run,” said Eric Grover, director of payments advisory services, Intrepid Ventures, based in Minden, Nevada. “It’s an irresistible goal.”
Grover says regulatory clarity “would be a good thing,” given the rapid rise in the credit product and the fact that most of that history came at a time of strong economic performance in the United States. âThe BNPL programs have not been tested through an awkward credit cycle,â he says.
The new rules, when final, are likely to “restrict the economics of the programs,” Grover added. While consumers don’t pay interest when they do theirs Installment payments On-time merchants pay transaction fees that can be higher than credit card rebate fees, Grover notes, with percentages as high as 6% for smaller sellers.
Because of this, Grover says, all regulatory efforts should be watched, including the growing interest of the CFPB. “When I’m afterpay or Klarna or PayPal, I pay close attention to it,” he says.
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