December 23, 2021

CFPB Begins Its Inquiry into the “Buy Now, Pay Later” Credit Industry

Bernard Nash

Cozen O'Connor

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Cozen O'Connor

The CFPB issued market-monitoring orders under the Dodd-Frank Wall Street Reform and Consumer Protection Act to five companies offering “buy now, pay later” credit requiring them to provide information for its examination of the industry’s practices, as well as the risks and benefits of these loans to consumers. The companies include Affirm, Afterpay, Klarna, PayPal, and Zip.
“Buy now, pay later” credit is a type of deferred payment option that generally allows a consumer to split the purchase into smaller installments, and the product often comes with no interest. Merchants adopting BNPL programs are willing to typically pay 3-6% of the purchase price to the companies because consumers often buy more and spend more with BNPL, especially during the holiday shopping season.
The orders require the companies to provide a wide range of information on the BNPL industry, including information on loan products and their performance metrics, business models, consumer data and demographics, consumer protections, and data harvesting, which will allow the CFPB to assess and publish aggregated findings on the industry’s regulatory arbitrage and data harvesting as well as its impact on the accumulation of consumer debt.
The CFPB also announced that its inquiry into the BNPL industry would include cooperation with its counterparts in Australia, Sweden, Germany, and the UK as well as coordination with the Federal Reserve System and its state partners.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.