Saturday, January 28, 2023
In a report released in September 2022, the CFPB highlighted a number of concerns it has about BNPL products and the potential risks posed to consumers. And the consumer watchdog agency said it was considering "interpretive guidance" to ensure providers understand they must abide by the same laws and regulations that apply to credit card companies.
In a September 2022 blog post, the FTC also expressed concerns and fired off a warning to BNPL companies and their partners.
"If your business offers BNPL payment options as a retailer or BNPL company – or if you play a role in the BNPL ecosystem as a marketer, collector, etc. – remember that basic consumer protection ground rules of the FTC Act apply," Helen Clark, an FTC attorney wrote. The FTC Act sets out the FTC's mission, including its authority to take down companies that engage in unfair or deceptive activities affecting consumers and commerce.
Clark warned BNPL providers to make sure all claims are true for the "typical consumer" and to not engage in blame shifting. "[T]he presence of multiple actors in a transaction is not a shield against liability," she wrote. "When retailers and BNPL companies offer payment plans to consumers, both may be held liable when people are deceived or treated unfairly."
BNPL has existed under one name or another for generations, but it really took off with ecommerce in response to the COVID pandemic and associated lockdown. In its current iteration, a BNPL is a short-term loan which, if paid on time over a predetermined number of installments, carries no interest for the consumer. Instead, merchants pay between 4 percent and 8 percent of the typical ticket to the BNPL company.
The CFPB reported that in 2021, the five leading providers of BNPL—Affirm, Afterpay, Klarna, PayPal and Zip—originated a combined 180 million BNPL transactions totaling 24.2 billion, with an average loan size of $135. The number of originations rose at a combined annual growth rate of 227 percent between 2019 and 2021, the CFPB reported. In terms of value the CAGR was 245 percent.
Consumer Reports reported that 28 percent of adults it surveyed in August 2022 had used BNPL at least once, up from 18 percent in January 2022. Meanwhile, Affirm recently said it has seen a big surge in BNPL usage for airline purchases—700 percent in 2022, alone.
However, as CFPB Director Rohit Chopra detailed in remarks in September 2022, consumers who rely on BNPL can easily become overextended. He related that based on the CFPB's analysis, 2.9 percent of BNPL loans made in 2020 resulted in chargeoffs. In 2021, the chargeoff rate was 3.8 percent, and that upward trajectory was seen as continuing "through the first half of 2022," Chopra said.
He also pointed to potential problems due to inadequate consumer protections.
Chopra said he had directed staff to undertake several BNPL-related initiatives, including "interpretive guidance or rules" that spell out how federal consumer protection laws apply to the product. He also proposed supervisory examinations of BNPL that are similar to exams banks regularly undergo.
The CFPB has not offered a timetable for its work. But recent news stories about Affirm users getting hit with duplicate charges could heighten public awareness. (Affirm promptly fixed what it identified as a "technical issue" but not before some customers had overdrawn their bank accounts.)
The CFPB would not be the first regulator to have the BNPL market in regulatory crosshairs. The Australian government recently proposed several options for regulating BNPL products, including the creation of an "affordability test," and subjecting BNPL to the same consumer protection regulations that apply to credit cards.
The United Kingdom has proposed extending the reach of its consumer credit laws to BNPL products, also, and several other countries are said to be closely monitoring the market. The UK government also recently issued a warning about "misleading adverts" for BNPL products. 
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