CFPB Targets “Buy Now, Pay Later” Industry

The Consumer Financial Protection Bureau (CFPB) announced this week that it is opening an inquiry into “buy now, pay later” (BNPL) services, which have become increasingly popular with online consumers.  In a December 16, 2021 statement, the CFPB said that it is looking to “collect information on the risks and benefits of these fast-growing loans” from five leading BNPL companies.

The CFPB ordered these companies to submit information pursuant to its authority under Section 1022(c)(4)(B)(ii) of the Dodd-Frank Act so that it can report to the public about industry practices and risks.  The CFPB is specifically worried about consumer debt accumulation, regulatory arbitrage, and how BNPL companies harvest consumer data.

Goodwin hosted a BNPL webinar last week (viewable on our website by clicking the link).  In that session, partners in our Financial Industry and Consumer Financial Services Enforcement & Litigation practices, Anthony Alexis, Mike Whalen, and Kimberly Monty Holzel, discussed what companies that offer BNPL products and services can expect to see from both state and federal regulators, including the CFPB, and what they can do to prepare.

The CFPB’s action is the first of many concrete steps government actors are now taking.  In its statement, the CFPB noted a “massive growth in BNPL,” and highlighted the inquiry as an effort to educate itself and the public on the state of the market and potential concerns.

BNPL is a type of deferred payment option that generally allows the consumer to split a purchase into smaller installments, typically four or less, often with a down payment of 25 percent due at checkout.  The CFPB suggested that the ease of accessing BNPL options across multiple apps or web browser plug-ins may cause both overspending and consumer confusion, as well as possible payment difficulties and associated fees and charges.  The CFPB also speculated that some BNPL providers may not be adequately assessing which consumer protection laws apply to their products and what associated requirements must be met.  The CFPB described its inquiry as directed at gathering information relevant to those issues, as well as concerning providers’ data collection and marketing. The agency stated that it is working with the Federal Reserve, state officials and several other countries on the BNPL inquiry, and it expects to publish its findings.

The CFPB’s announcement came after a House Financial Services hearing concerning BNPL, held on November 2, 2021, and one day after six Democratic United States senators on the Committee on Banking, Housing, and Urban Affairs, including Elizabeth Warren, urged the CFPB in a letter to examine BNPL products.

We will continue to be engaged with developments in the ongoing scrutiny of BNPL market participants, and how the heightened attention can inform business and compliance in this area.