On March 2, 2023, the Consumer Financial Protection Bureau (CFPB) issued a report (Report) exploring the financial profiles of consumers of Buy Now, Pay Later (BNPL) products. The Report is based on the CFPB’s 2022 Making Ends Meet survey, which included data from 2,036 consumers and data from credit bureaus. Seventeen percent of survey respondents indicated that they had made at least one BNPL purchase in the 12 months prior to taking the survey.
The CFPB noted that BNPL borrowers were, “on average, much more likely to be highly indebted, revolve on their credit cards, have delinquencies in traditional credit products, and use high-interest financial services such as payday, pawn, and overdraft compared to non-BNPL borrowers.” The CFPB additionally noted that “BNPL borrowers had higher credit card utilization rates and lower credit scores.”
Among the CFPB’s key findings are:
- Consumers who use BNPL products tend to have substantial access to and use of other forms of credit. But, most of the other credit forms are more expensive than BNPL products.
- BNPL users were more likely than non-BNPL borrowers to use traditional credit products including credit cards, retail cards, personal loans, auto loans, and student debt.
- BNPL borrowers have lower liquidity and savings on average compared to non-BNPL consumers.
- BNPL borrowers show financial distress factors that are significantly higher than non-users. This includes “higher credit card debt and utilization rates, a higher likelihood of having an overdraft, a higher likelihood of revolving on at least one credit card, and higher utilization rates of alternative financial services that charge high interest rates.”
The CFPB, however, noted that the Report had three limitations. First, BNPL use was identified based only on consumer self-reporting and reporting for one point of time. Therefore, it is possible that a consumer misreported a traditional installment loan as BNPL due to marketing of products that are similar to BNPL and also because some lenders offer products, such as the “pay-in-four” product that have similarities to BNPL but are an installment product. Second, because the CFPB surveyed consumers with a credit record, the Report does not cover the approximately 11% of consumers that do not have a credit record. Third, the Report’s data does not identify causality with respect to whether consumers in distress are more likely to use BNPL or if the use of BNPL products leads to more delinquencies and increased borrowing via non-BNPL products. The CFPB notes that “[t]his question remains an important area for future research.”
The Report follows the CFPB’s September 2022 report on BNPL and the CFPB’s related press release, which stated that the CFPB is looking to “identify potential interpretive guidance or rules to issue with the goal of ensuring that Buy Now, Pay Later firms adhere to many of the baseline protections that Congress has already established for credit cards” and to “ensure that Buy Now, Pay Later companies are subjected to appropriate supervisory examinations, just as credit card companies are.”