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September 16, 2022

CFPB mulls tougher regulations for US BNPL players

The US Consumer Financial Protection Bureau (CFPB) has revealed plans to bring Buy Now, Pay Later (BNPL) companies under supervisory examinations, in an effort to ensure fair practices in the sector.    

The decision is based on a report released by the consumer watchdog on the BNPL industry trends.

According to the report titled ‘Buy Now, Pay Later: Market trends and consumer impacts’, the industry that registered rapid growth during the Covid pandemic fell short on disclosures and consumer protections.

The report highlighted several problem areas including lack of standardised cost-of-credit disclosures, minimal dispute resolution rights and a forced opt-in to autopay.

CFPB director Rohit Chopra said: “The CFPB’s report identifies several places where firms are not providing the same rights and protections with Buy Now, Pay Later loans that credit card companies provide.”

Furthermore, the report noted that ways adopted by BNPL lenders to harvest and monetise consumer data may affect consumers’ privacy and security.

This, in turn, may result in consolidation of market power by a few major technology platforms, leaving no scope for innovation and price competition.

To address these issues, CFPB plans to monitor data surveillance practices and issue necessary guidance for appropriate credit reporting by BNPL lenders.

CFPB director Rohit Chopra said: “We are reviewing our appropriate authorities to conduct examinations on a compulsory basis. Our staff will also be working with state regulators that licence nonbank finance companies on examinations of these firms.

“With roughly $900bn in outstanding credit card debt and Buy Now, Pay Later lending rapidly gaining share, the CFPB will continue to make sure that Buy Now, Pay Later is fair, transparent, and competitive.” As BNPL serves as a close substitute for credit cards, CFPB plans to work towards ensuring that “borrowers have similar protections, regardless of whether they use a credit card or a BNPL loan”.

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