Global fintech and funding innovation ecosystem

CFPB to Regulate BNPL Like Credit Card Firms

CNBC | Chelsey Cox | Sep 15, 2022

Buy now pay later adoption growing and so are risks - CFPB to Regulate BNPL Like Credit Card Firms

Image: Pexels/Andrea Piacquadio

  • BNPL lenders to be monitored like credit card companies:  The U.S. Consumer Financial Protection Bureau plans to subject “buy now, pay later” lenders to the same vigorous oversight as credit card companies, saying the short-term financing industry harvests consumer data in ways that threatens consumer privacy.
    • Considered a substitute for traditional credit cards, the buy now, pay later model allows consumers to pay off a loan in a few installments, most commonly four interest-free increments. The service, provided by a host of firms such as Klarna and Afterpay, increased in popularity during the pandemic.

See:  Apple Finally Unveils its BNPL Offering. 4 Things to Know Before Signing Up

  • Guidance forthcoming:  The consumer watchdog, which doesn’t currently regulate the industry, plans to issue guidance to oversee the lenders and subject them to supervisory exams, CFPB officials said.
  • Rise in loan approval rates:  The CFPB found that adoption of the service is growing across all age groups, according to Chopra.
    • Apparel and beauty merchants accounted for over 80% of usage in 2019 but only 58.6% in 2021 as more consumers used buy now, pay later for services such as travel, pet care, groceries and gas.
    • More customers are also getting approved for the loans. In 2021, 73% of applicants were approved, compared with 69% in 2020, according to the report.
  • Consumer risks: lack of consumer protections compared with traditional credit card companies, data harvesting and monetizing customer data, debt accumulation and “loan stacking” — or taking on numerous loans at the same time.
    • Late fees are also becoming more common. The CFPB found that 10.5% of unique users were charged at least one late fee in 2021, compared with 7.8% in 2020.

See:

Why BNPL Swedish giant Klarna has sights set on Canada

Financial Consumer Agency of Canada publishes BNPL pilot study

Mike Taiano, senior director of Fitch Ratings:

“Though not a surprise, the CFPB’s report portends more intense regulatory scrutiny at a time when Buy-Now-Pay-Later faces increasing headwinds in the form of rising funding costs, weaker credit performance, and heightened competition"

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Download the 83 page CFPB Buy Now Pay Later report --> here


NCFA Jan 2018 resize - CFPB to Regulate BNPL Like Credit Card FirmsThe National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org

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