Credit union trade organizations CUNA and NAFCU filed letters with the CFPB on Friday asking the Bureau to carefully examine and regulate buy now, pay later (BPNL) businesses.
In December 2021, the CFPB opened an investigation into five companies offering BPNL products after consumer complaints about exorbitant interest rates charged on BPNL purchases. According to the CFPB, these types of point-of-sale installment loans can increase the cost consumers pay by 30% to 50%.
Since then, the CFPB issued a request for information on BPNL’s products and services.
Senior Director of Advocacy and Consulting for Consumer Protection at CUNA, Alejandro Monterrubio wrote, “While credit unions welcome innovation in the marketplace, we are concerned that the exponential growth of BNPL products has outpaced prudent regulatory oversight and could ultimately result in consumer harm. Furthermore, the absence of effective supervision creates an uneven playing field to the material detriment of traditional lenders.”
Counselor for Regulatory Affairs of NAFCU, James Akin expressed his concern with the CFPB of the potential targeting of BPNL products to low-income consumers. “While NAFCU supports increased access to credit, it must be done safely and with awareness of differences in financial health and ability to pay. NAFCU and its member credit unions have significant concerns regarding the apparent targeting of BNPL providers to low-income or check-to-check consumers, as well as the underwriting that accompanies each loan,” the letter said. .
According to 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 protections.
“The addition of more credit unions, with their culture of compliance and consumer protection, to the BNPL market 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 asked the CFPB to step up efforts to better regulate BPNL companies and their products.
“Credit unions and other well-established financial service providers are heavily regulated for safety and soundness and consumer protection regulatory compliance. This is not always the case for companies that offer BNPL products,” Monterrubio wrote.