Credit cards

Consumer groups urge CFPB to regulate BNPL products like credit cards, citing ’cause for concern’

More than 75 groups sent a letter to the CFPB, urging it to start regulating buy now, pay later providers like credit card companies. (iStock)

More than 75 banking and consumer groups wrote a joint letter to Consumer Financial Protection Bureau (CFPB) Director Rohit Chopra on March 28, urging him to tighten regulations for buy now, pay more products. later (BNPL) that would help protect consumers.

BNPL providers like Affirm, Klarna, Afterpay and PayPal allow shoppers to split their online purchases into multiple smaller installments at checkout. Payments are interest-free as long as they are paid on time, and consumers may be subject to late fees and penalties if they are not.

The groups said in their letter that the CFPB’s investigation into BNPL programs was welcome, but they were “alarmed by the lack of regulation of this booming market for consumer credit products.” They added that even though BNPL products are useful to consumers, they are still risky.

“We urge the CFPB to consider BNPL products as credit cards covered by the Truth in Lending Act (TILA), to enact a broader participation rule to oversee this market, and to monitor practices that harm consumers. “, they said.

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BNPL could cause consumers to rack up unaffordable debt, groups say

Although BNPL providers help consumers pay for their purchases by breaking them down into smaller payments, the lack of regulatory oversight worries many stakeholders. The groups explained in their letter to Chopra that unmanageable debt, hidden fees, and a lack of clear disclosures could lead to bigger problems.

“The marketing of buy now, pay later credit is attractive, with promises of instant approval and no impact on consumer credit,” the letter says. “However, many providers do not undertake meaningful underwriting to assess a borrower’s repayment capacity, allowing consumers to rack up unaffordable debt.”

The National Community Reinvestment Coalition (NCRC) has also sent a letter to Chopra, stating that he was “concerned about the impact of these relatively unregulated services” and urged the CFPB to consider BNPL products as credit cards covered by the Truth in Lending Act (TILA). The NCRC is a non-profit association made up of more than 600 organizations that include civil rights groups, faith-based organizations, government agencies, women-owned professional associations and more.

Additionally, NCRC President and CEO Jesse Van Tol said in a statement that the current state of the BNPL industry makes it an unsupervised “Wild West”.

“Buy now, pay later is naturally alluring to consumers and retailers alike – but when you explore how it actually works, it’s obvious that it needs to be covered by traditional and effective consumer protection laws,” Van said. Tol. “This new financial product is spreading too quickly to remain an unmonitored ‘Wild West’ nationwide – and we commend the CFPB for engaging with community and industry leaders to protect Americans from any harm.”

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BNPL services continue to grow in popularity with consumers

BNPL services are growing in popularity, with the number of monthly users reaching an all-time high of over eight million in December 2021, according to payment news and trends outlet Payments Dive. The publication added that although the holiday season has brought a surge in BNPL users, “its novelty may have started to wear off”.

A review of the CFPB’s consumer complaints database by an independent US consumer group PIRG Education Fund Unveiled that BNPL’s services may have hidden costs. The study found that consumers complained to the CFPB about hidden fees, high interest rates and problems if they show up for debt collection.

The data also reveals that many consumers are going beyond their means to make these purchases. Around 40% of BNPL users said they have used the service to make purchases that otherwise would not have been within their budget, according to Insider Intelligence. And those who had their bank account overdrawn were more than twice as likely to have used BNPL services, according to Morning Consult.

If you’ve had to deal with overdraft fees or accumulated debt because of BNPL’s services, you might consider paying it off using a personal loan. Contact Credible to speak with a loan expert and get all your questions answered.

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