A Consumer Financial Protection Bureau (CFPB) report examining the Buy Now, Pay Later industry determined the industry grew during the pandemic, but borrowers may have received uneven disclosures and protections.
“Buy Now, Pay Later is a rapidly growing type of loan that serves as a close substitute for credit cards,” CFPB Director Rohit Chopra said. “We will be working to ensure that borrowers have similar protections, regardless of whether they use a credit card or a Buy Now, Pay Later loan.”
Authorities noted the analysis Buy Now, Pay Later: Market trends and consumer impacts involved five firms surveyed in the report, with the entities having originated 180 million loans totaling over $24 billion last year.
The interest-free credit enables a consumer to fully purchase a product and pay back the loan over four installments, with the first installment typically being a down payment on the purchase.
The report found that loan approval rates are rising, late fees are becoming more common, more purchases are ending in returns, and lenders’ profit margins are shrinking.
The CFPB will identify potential interpretive guidance or rules to issue to ensure Buy Now, Pay Later lenders adhere to baseline protections Congress has already established for credit cards while also ensuring Buy Now, Pay Later lenders are subjected to appropriate supervisory examinations.