The report, Buy Now, Pay Later: Market trends and consumer impacts, indicates the industry grew at a substantial rate during the COVID-19 pandemic but warns it may have gaps with respect to consumer protection. The report includes a survey of five firms that accounted for 180 million loans worth more than $24 billion last year, according to the CFPB. Those figures represent close to a tenfold jump from 2019.
“Buy Now, Pay Later is a rapidly growing type of loan that serves as a close substitute for credit cards,” said CFPB Director Rohit Chopra. “We will be working to ensure that borrowers have similar protections, regardless of whether they use a credit card or a Buy Now, Pay Later loan.”
BNPL, essentially, is an interest-free credit offering allowing consumers to break up payment for a product into installments. Typically, notes the CFPB, these loans range from $50 to $1,000 and include late fees for missed payments.
"I just moderated a panel on embedded finance at #FinovateFall and someone suggested BNPL for AWS bills and now that’s all I can think about."
According to an assessment from Investopedia, Affirm was ranked as the best overall BNPL operation in 2022. Other standout companies include:
- Sezzle for flexible payment plans
- Afterpay for students
- Splitit for its lack of a credit check
- Perpay for those with bad credit
- PayPal Pay in 4 for small purchases
- Klarna for large purchases
While BNPL may be growing steadily in its adoption, the CFPB has identified some areas of concern in its new report and, as such, offered some guidance on how consumers can protect themselves and companies can avoid regulatory woes.
“Borrowers seeking Buy Now, Pay Later credit may encounter products that do not offer protections that are standard elsewhere in the consumer financial marketplace,” according to the regulatory agency. “These include a lack of standardized cost-of-credit disclosures, minimal dispute resolution rights, a forced opt-in to autopay, and companies that assess multiple late fees on the same missed payment.”
Data harvesting, monetization, debt accumulation and overextension are also identified as potential consumer risks. With respect to data collection, the CFPB pointed to consumer privacy concerns as well as the potential for “a consolidation of market power in the hands of a few large tech platforms who own the largest volume of consumer data, and reduce long-term innovation, choice, and price competition.”
"Customers want different payment options, including buy now, pay later. If you want the customer to convert, you have to offer BNPL and hope the regulation will follow says Vineta Bajaj of @Ocado. #FTRetail #retail #payments"
Additionally, the report notes, there are risks to traditional lenders, as most BNPL firms do not share their data with credit reporting agencies. This means other lenders will be unaware of borrowers’ liabilities when making lending decisions.