by Courtney M. Dankworth, Alexandra N. Mogul, Gregory J. Lyons, Courtney Bradford Pike, Zila Reyes Acosta-Grimes, and Jehan A. Patterson
On Thursday, September 16, 2022, the Consumer Financial Protection Bureau (“CFPB” or the “Bureau”) published a report (the “Report”) detailing the regulatory risks of Buy Now, Pay Later (“BNPL”) products in response to last December’s market monitoring orders to five BNPL companies.
BNPL generally refers to a credit product offered by a third-party institution that enables consumers to split the payment for a retail transaction into four equal installments: the first payment is a down payment due at checkout, and the remaining payments are made in two-week intervals over the next six weeks. BNPL lenders do not charge interest; rather, they incur revenue in the form of late fees and, in some instances, transaction fees.
This blog post first provides a brief overview of some of the unique qualities of the BNPL industry, which has been experiencing significant growth over the past few years. It then outlines the key risks to consumers posed by the BNPL industry as highlighted in the Report as well as the Bureau’s stated next steps for increasing its oversight of the industry. At least in the near term, it appears that the Bureau intends to exercise its jurisdiction over BNPL lenders through supervisory examinations and the issuance of interpretive rules or similar guidance to provide consumers with protections similar to those in the traditional credit card space. This blog post outlines steps that BNPL lenders may wish to consider taking to mitigate the potential risks to consumers that the Report identifies.