CFPB’s BNPL regulations don’t go far enough, Harvard researcher says

CFPB Takes Steps to Regulate Buy Now Pay Later Lenders

The Consumer Financial Protection Bureau said in May that buy now, pay later customers should receive the same federal protections as credit card users.

However, Marshall Lux, a researcher at the Mossavar-Rahmani Center for Business and Government at the Harvard Kennedy School who studies BNPL, says the government’s latest guidance is already a few steps behind schedule.

“What fundamentally changes? Nothing really,” he said.

The new regulations mean the industry – currently dominated by fintech companies like Affirm, Klarna and PayPal – must issue refunds for returned products or canceled services, investigate merchant disputes, suspend payments during those investigations and provide invoices showing charges.

Major buy now, pay later providers already offer such guarantees to users.

“We have an industry that moves at the speed of light and a regulatory process that takes time,” Lux said.

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The Financial Technology Association, an industry trade group representing companies including Afterpay, Klarna, PayPal and Zip, said it welcomed the guidance for the rest of the industry.

“FTA member companies are committed to robust consumer protections, including disputes and refunds, and agree that these protections should be applied consistently across the industry and to businesses claiming to offer buy now, pay later services,” said FTA Director Penny Lee. President and CEO.

Klarna CEO on CFPB statement: It's wise to put regulations in place on this

Sebastian Siemiatkowski, CEO and co-founder of Klarna, said he has been calling for this type of regulation for years.

“We support the CFPB’s guidelines to protect consumers from harmful actors, and Klarna already investigates consumer disputes, covers related refunds, and provides purchasing information in the Klarna app,” he said. told CNBC.

“This is a looming debt problem”

Lux said a key gap in the CFPB’s efforts lies in regulating how BNPL lenders provide data to the three major credit reporting agencies: Equifax, Experian and TransUnion.

Until now, installment payments have gone largely unnoticed in the debt tally, mainly because most lenders do not disclose their customers’ loan information and payment history.

“If I had to do one thing, it would be this,” Lux said of regulating how a consumer’s BNPL history could be factored into their credit history and ultimately account in your credit score.

“This is a looming debt problem that we haven’t gotten our hands on yet,” Lux said.

This is a looming debt problem that we have yet to get our hands on.

Marshall Lux

researcher at the Mossavar-Rahmani Center for Business and Government at the Harvard Kennedy School

A CFPB spokesperson told CNBC that the agency is “monitoring this issue closely and we are starting to see progress.”

“But we continue to share our concerns that mortgage, auto and even other BNPL lenders may not have a complete picture of a potential borrower’s debt burden when BNPL is not reported,” a declared the spokesperson. “We will therefore continue to provide options for how the industry and consumer reporting companies can develop appropriate and accurate BNPL credit reporting practices.”

For now, BNPL is operating in “de facto stealth mode,” Tim Quinlan, senior economist at Wells Fargo, recently told CNBC.

“As there is no central benchmark to monitor it, the growth of this ‘phantom debt’ could imply that total household debt levels are actually higher than traditional measures,” Quinlan said.

BNPL “can easily push consumers further into debt”

Buy now, pay later, which typically breaks a purchase into a few interest-free payments, is one of the fastest-growing categories of consumer credit, according to a Wells Fargo report.

Now, short-term financing plans are one of the most used forms of credit — second only to credit cards — among consumers, according to a separate report from NerdWallet.

But as BNPL has become more popular, users have become more prone to overspending and missing or late payments, other studies have found.

“With rising inflation and the current debt crisis, it is more important than ever that consumers are thoughtful about their purchases and payment methods,” said Michael Hershfield, Founder and CEO of Accrue Savings .

“Platforms like BNPL have grown in popularity, even for everyday essentials, but can easily push consumers into deeper debt,” he said.

‘This is just the beginning’

“This is just the beginning of the CFPB’s regulation of the BNPL sector,” according to Erin Bryan, co-chair of the consumer financial services group at international law firm Dorsey & Whitney.

“This is the most significant regulatory response to BNPL to date,” she said.

For now, what consumers like about BNPL products is that they are different from traditional credit cards. “They generally don’t affect a user’s credit score, the repayment terms are short, and they’re available at the click of a button,” Bryan said.

“The key question is whether the CFPB’s regulation of BNPL providers will ultimately make their products less attractive to consumers,” she added.

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