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Banks, Consumer Groups Seek Tougher Buy-Now, Pay-Later Oversight

March 29, 2022, 10:00 AM

Banks and consumer advocates are calling on the CFPB to compel “buy-now, pay-later” providers to make repayment and other terms easier to understand.

Buy-now, pay-later (BNPL) companies, which provide installment loans, are already covered by many federal and state consumer finance laws. But the lack of uniform requirements for BNPL companies’ disclosures on late fees and loan repayment can drive borrowers into debts they can’t afford, according to comments to the agency by consumer advocates and banks that compete with BNPL providers.

The Consumer Financial Protection Bureau has been studying the BNPL industry for several months, and is expected to ratchet up its oversight of the industry’s practices in the coming months.

“Allowing these products to escape coverage would lead to an undermining of consumer protection laws, making the financial marketplace less fair and competitive,” a coalition of 77 consumer, religious, civil rights and other advocacy groups said in a Friday letter to the CFPB.

In December, the CFPB sent letters to the largest BNPL providers, including Affirm and Klarna, seeking information about how they comply with federal lending laws and regulations. The letters also sought information on debts consumers can rack up using BNPL firms’ apps, as well as other questions about product design.

The CFPB also launched a public public comment period for the inquiry that closed Friday.

Preventing Deception

Buy-now, pay-later products have seen a spike in usage in the U.S. since the coronavirus pandemic began in March 2020. The most commonly used version of the product, known as pay-in-four, allows consumers to pay for an item in four installments across six or eight weeks.

The pay-in-four model that most BNPL companies use don’t fall under the Truth In Lending Act’s jurisdiction, consumer advocates and banking trade groups said. The law, which mandates certain disclosures about fees and other loan terms, only applies to loans that are paid in more than four installments.

Klarna and other BNPL firms voluntarily provide fee and other disclosures in line with what is required by TILA. But some in the BNPL business fall short of such disclosures.

The Bank Policy Institute, an industry lobbying group, said the CFPB should use its authority to prevent and go after unfair, deceptive and abusive acts and practices. Such enforcement would force BNPL firms to “disclose all relevant product information in a clear, transparent, and truthful manner in marketing and other product-related materials,” the group said.

Consumers’ ability to stop payments to BNPL firms when their bank accounts are running low is also a concern, consumer advocates and industry groups said.

Most BNPL companies set up autopay for their customers that can be linked to a bank account or credit card.

BNPL firms typically don’t allow consumers to stop autopay even when their bank accounts are running low. Consumers “may be forced to incur [nonsufficient funds] fees from their bank, late fees from other BNPL lenders, and returned payment fees from at least one BNPL lender,” the Consumer Bankers Association said in a letter to the CFPB.

Larger Participant Rule

The Bank Policy Institute and the coalition of consumer groups called on the CFPB to create a larger participant rule for the BNPL industry. Such a rule would allow the CFPB to designate the biggest companies in the market for regular supervision by agency examiners for compliance with relevant regulations.

All non-industry groups called for the CFPB to keep an eye on developments in how BNPL companies report data to credit reporting bureaus in the future. Currently, Equifax is the only one of the big three credit bureaus that accepts data on BNPL loans.

Those groups also raised concerns about dispute resolution and fraud protections offered by BNPL providers.

The Financial Technology Association, a trade group for financial technology firms including many BNPL providers, said that its members are “committed to continuing to advance industry standards that safeguard consumers, including transparent and consistent disclosures.”

To contact the reporter on this story: Evan Weinberger in New York at

To contact the editors responsible for this story: Roger Yu at; Michael Ferullo at