CFPB Raises Red Flags Over Buy Now Pay Later Craze

As a consumer, having someone fight in your corner is a refreshing thought, especially with the uncertain economics. The American Consumer Financial Protection Bureau is stepping in and retailers might not like it. 

Why Buy Now and Pay Later?

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Buy now pay later (BNPL) is one of many ways consumers are doing their online shopping. It allows a bit of credit over a short period, like three or four months. 

No Interest 

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Customers often favor the BNPL approach because, unlike other credit options, no interest is charged. This allows the customer to pay the price they see for the item. 

Works for Bad Credit…Sometimes 

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Consumers with bad credit might be able to purchase via the buy now pay later option, provided they maintain monthly installments on the item. Some retailers do a “soft” credit check, while others do a complete credit check before approving their purchase. 

It Does Affect Credit Score

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All credit options have some effect on consumer credit scores, and BNPL is no different. 

Spending via Credit Can Get Out of Hand 

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According to, American consumers have managed to increase their debt post-pandemic from $927 billion to $986 billion. If credit isn’t managed carefully, it can spiral out of control. 

BNPL Rapidly Expands 

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According to the CFPB, it “…has launched an inquiry into the rapidly expanding buy now pay later market…”

It’s a Booming Industry

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It’s no secret that the BNPL industry has boomed over the last few years. More and more American consumers are favoring the short-term credit option while having their goods beforehand. 

Convenience Outweighing Risks? 

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For consumers, being able to buy an expensive item and receiving the item before the payment is completed is convenient. The payment terms don’t tie the customer down for a long period, like a year or more. 

Protecting the Consumer 

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The Consumer Financial Protection Bureau aka CFPB has done a two-year study to navigate the waters of BNPL and its consumers. 

The Findings of the Study 

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According to the CFPB, most customer complaints involved refunds and disputed transactions. The CFPB also mentioned that the action it’s taking, with the rules it’s implementing, will improve consistency and customer service. 

It Seems Convenient 

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During the study, the Consumer Financial Protection Bureau saw the buy now pay later option working similarly to a credit card. Except, the BNPL charges interest to the retailers selling these items to the consumer. 

Studying Five Companies 

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The five companies the CFPB studied included PayPal, Afterpay, Klarna, Zip and Affirm. 

It’s Not Aways Convenient

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Rohit Chopra, the Director of CFPB said that the process is similar to the “layaway plan” except faster. “The customer gets the product  immediately but gets the debt immediately too…

Concerns for the Consumer 

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According to the CFPB, some major concerns include “accumulating debt” as the customer is able to buy more items under the buy now, pay later option. Consumers can purchase with multiple companies and at varying schedules. 

“Regulatory Arbitrage” 

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The CFPB also expressed that there are different rules to follow depending on the fees and policies that apply. Sometimes BNPL companies don’t highlight all the regulations and disclosures when the consumer checks out. 

Not Always a Solution for Disputes 

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Unlike credit card purchases and other forms of loan debt, the BNPL may not offer solutions regarding disputes. 

“Data Harvesting” 

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There are many ways BNPL retailers harvest their consumer data and sometimes the data is used to push other sales. 

Protection Underway 

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The American Consumer Financial Protection Bureau has set about creating additional rules that will now further protect customers purchasing under the buy now pay later option. 

Some Findings 

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Some findings reported by the CFPB included 13% of buy now pay later transactions are disputed. The bureau confirmed that in 2021 after looking into five BNPL companies, the cost of these disputes amount to $1.8 billion. 

Uncertainties Amongst Consumers

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“When consumers check out and choose buy now pay later, they don’t know if they will get their refund if they return the product or whether the lender will help them if they didn’t get what was promised,” Chopra said. 

BNPL Companies to Meet Criteria 

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According to the CFPB, lenders must investigate disputes, cater for refunds, cancellations and returns, and provide billing statements to consumers.

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The content of this article is for informational purposes only and does not constitute or replace professional financial advice.