A new report from US PIRG contains findings likely to add a new sense of urgency to the Consumer Financial Protection Bureau’s (CFPB) investigation into so-called “By Now Pay Later” financing. The report has a number of key findings, including the fact that BNPL complaints to the CFPB rose sharply from 2019 to the beginning of 2022.
The rapid rise of this form of consumer finance, sometimes known as point-of-sale installment lending, has increased significantly in the past few of years. This has led to questions about its regulation and implications for competition with state-licensed installment lenders. The CFPB opened its inquiry into the largely unregulated BNPL industry in December 2021 and invited public comments by March 25, 2022.
BNPL loans differ from traditional installment loans in that they tend to be used exclusively for “wants” rather than “needs”. A report from the Strawhecker Group indicated that luxury items were the most common purchases through BNPL agreements, with electronics, clothing and fashion, and beauty and cosmetics the top three spending categories for BNPL borrowers.
Nevertheless, these sources of consumer finance do offer a degree of competition to state-licensed, traditional installment lenders. Given their unregulated nature, this competition currently takes place on an uneven playing field, with traditional installment lenders shouldering a regulatory burden which BNPL lenders are spared.
To that end, NILA welcomes the CFPB and other regulators’ interest in BNPL lenders as a move towards eliminating the competitive advantage that BNPL lenders currently enjoy. Policymakers and regulators should be careful however, that while seeking to regulate BNPL providers, they do not inadvertently increase the challenges for established, licensed lenders