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December 17, 2021

US regulator orders BNPL firms to provide data on services

By Amala Johney

The US Consumer Financial Protection Bureau (CFPB) has initiated an inquiry into ‘buy now, pay later’ (BNPL) credit following concerns about consumer risk.

The agency has ordered BNPL firms Affirm, Afterpay, Klarna, PayPal, and Zip to submit data on the risks and benefits of their services that enable consumers to pay for their purchases in instalments often without any interest.

Usually, the application process for such services takes little time and involves relatively little information from the consumer.

The CFPB said that it is concerned about ‘accumulating debt, regulatory arbitrage, and data harvesting in the consumer credit market’ that is quickly evolving on the back of the technology.

CFPB director Rohit Chopra said: “BNPL is the new version of the old layaway plan, but with modern, faster twists where the consumer gets the product immediately but gets the debt immediately too.

“We have ordered Affirm, Afterpay, Klarna, PayPal, and Zip to submit information so that we can report to the public about industry practices and risks.”

Firms operating in the booming BNPL segment claim this option to be a ‘safer alternative to credit card debt’.

Further, merchants, who are turning to BNPL programmes, typically agree to pay 3% to 6% of the purchase price to the companies as consumers tend to buy more with the BNPL option.

CFPB expects to find the range of BNPL consumer credit products and their underlying business practices with its inquiry.

The agency is working with international partners in the UK, Sweden, Germany and Australia on the inquiry.

In October this year, CFPB ordered Amazon, Apple, Facebook, Google, PayPal and Square to provide information about their payment systems.

The BNPL segment has burgeoned during the pandemic as consumers turned to online shopping. The explosive growth and increasing investment in the sector have made companies, including Mastercard, and Visa, enter the arena.

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