CU Trades Point CFPB on Risks of Buy Now, Pay Later Products

CFPB headquarters in Washington, DC (Source: Shutterstock)

On Friday, credit union labor organizations CUNA and NAFCU filed letters with the CFPB asking the Bureau to carefully review and regulate “buy now, pay later” (BPNL) companies.

In December 2021, the CFPB opened an investigation into five companies offering BPNL products after consumer complaints were filed regarding exorbitant interest rates charged for BPNL purchases. According to the CFPB, these types of point-of-sale installment loans can increase the cost paid by consumers by up to 30% to 50%.

Since then, the CFPB has issued a request for information on BPNL’s products and services.

Alexander Monterrubio, CUNA’s Senior Director of Advocacy and Consumer Protection Advocate, wrote, “While credit unions welcome innovation in the marketplace, we are concerned that the exponential growth of BNPL products has overtaken regulatory scrutiny. prudent and could ultimately harm consumers. Moreover, the lack of effective supervision creates unequal conditions of competition to the material detriment of traditional lenders.

NAFCU regulatory affairs attorney James Akin raised concerns with the CFPB regarding the potential targeting of BPNL products at low-income consumers. “While NAFCU supports increased access to credit, this must be done in a way that is safe and mindful of differences in financial health and repayment capacity. NAFCU and its member credit unions have significant concerns about the apparent targeting by BNPL providers of low-income or paycheck consumers as well as the under-underwriting that accompanies each loan,” the letter reads.

According to the NAFCU, Akin also asked the CFPB to consider several updates to Regulation Z that would level the playing field in the BNPL market to increase the availability of consumer credit while maintaining consumer protection.

“Adding more credit unions, with their culture of compliance and consumer protection, to BNPL’s marketplace can only serve to improve the standards and practices of BNPL as a whole,” Akin wrote.

CFPB research found that consumers spent nearly $100 billion on purchases using BNPL programs in 2021, up from $24 billion in 2020.

With this level of money spent, CUNA and NAFCU have asked the CFPB to step up its efforts to better regulate BPNL companies and its products.

“Credit unions and other well-established financial service providers are heavily regulated for safety and soundness and regulatory compliance for consumer protection. This is not always the case for companies offering BNPL products,” Monterrubio wrote.

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