CFPB Study Details the Rapid Growth of “Buy Now, Pay Later” Lending

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Treliant Takeaway:

Treliant has a dedicated FinTech service offering which specializes in supporting FinTechs as well as Banks who partner with FinTech companies. Treliant has extensive knowledge of the operations, compliance requirements, and sound industry practices in both FinTech, particularly BNPL, as well as in traditional credit card and consumer lending. Treliant has built many compliance programs for FinTechs and is well equipped to help BNPL and other non-traditional lending companies establish additional governance, controls, and reporting mechanisms to meet the increasing requirements by U.S. regulators.


On September 15th, the Consumer Financial Protection Bureau (CFPB or Bureau) provided its initial publication on research conducted and insights gained into the Buy Now, Pay Later (BNPL) subsection of the financial services industry. The CPFB described BNPL companies as “a form of interest-free credit that allows a consumer to fully purchase a product and then pay back the loan… Most BNPL loans range from $50 to $1,000 and are subject to late fees if a borrower misses a payment.”[1] This report follows the announcement of the CFPB’s priories earlier this year by Director Chopra. Included in those priorities was collecting and analyzing data provided from the five[2] largest BNPL companies (by originated loans) in 2021.

The data gathered showed the industry increased more than ten times in 2021 alone, including expansion into new consumer goods industries such as travel, pet care, groceries, gas, automotive, and home repair/remodeling, among others. Prior to 2020, the loans had been concentrated to consumer products such as beauty and apparel. In addition, the CFPB noted that approval rates had risen year-over-year, late fees had become more prominent, in the volume of cancelled loans increased due to customers returning purchases, and profit margins shrunk as more BNPL companies entered the market.

The CFPB concluded that while the usage of BNPL grew dramatically during the global pandemic, the level of protections and disclosures provided to consumers was largely disparate. Drawing comparisons to traditional credit cards, Director Chopra indicated that the CFPB will work to ensure that BNPL customers are afforded the same, if not similar, protections. Further, the CFPB identified additional key points:

  • Inconsistent protections: Products don’t necessarily offer the same standard protections as seen elsewhere in financial services products. This includes standard disclosures for cost-of-credit (Truth in Lending/Regulation Z), forced opt-in to autopay, and multiple, recurring late fees applied to a singular missed payment (as many repayment terms include multiple payments in a single month).
  • Data Harvesting: Rather than continuing with a strictly-originations growth model, many BNPLs are collecting borrower information to build profiles such as shopping behavior and preferences. Collection and harvesting of this data may call into question consumer privacy, security, and autonomy, and potential market consolidation power.
  • Debt Accumulation/Borrower Overextension: Many BNPLs allow for consumers to originate multiple loans and encourage borrowers to continue to purchase more, in a process called “stacking.” Due to many BNPLs only obtaining “soft credit” from credit bureaus when underwriting, and most do not report delinquencies, lenders are often unaware of a borrower’s current liabilities and repayment history.

The CFPB recognizes the benefits of the BNPL product, principally that the product contains significantly less direct financial costs on consumers than traditional banking products. However, the CFPB stated that it intends to provide additional guidance related to this product. Specifically, the Bureau intends to issue potential interpretive guidance to ensure that BNPL lenders provide the same level or similar protections as credit cards, and intends to subject BNPL lenders to supervisory examinations. The Bureau also intends to identify and advise BNPLs on data surveillance practices to avoid non-compliance or breakdowns in controls governing customer privacy and security, and will focus on assisting the industry with developing appropriate credit reporting practices.

[1] Press Release, CFPB

[2] Top 5 BNPL companies included in the study are noted as Affirm, Afterpay, Klarna, Paypal, and Zip (formerly Quadpay).