A group of six U.S. senators recently urged federal regulators to strengthen oversight of “buy now, pay later” (BNPL) installment loan providers.
BNPL products allow consumers to split the cost of their purchases with installment payments over several months, often. They are often interest-free.
U.S. Sens. Jack Reed (D-RI), Sherrod Brown (D-OH), Elizabeth Warren (D-MA), Chris Van Hollen (D-MD), Tina Smith (D-MN), and Jon Ossoff (D-GA) said these BNPL can serve an important role if the services are transparent, accountable, and supervised for compliance with federal consumer protection laws.
However, they say that some of these products can include hidden fees, create negative history in a consumer’s credit report, and encourage consumers to rack up debt they can’t afford. They expressed their concerns in a letter to Rohit Chopra, director of the Consumer Financial Protection Bureau (CFPB).
“While the emergence of BNPL as affordable small-dollar credit has potentially provided an alternative to more costly forms of credit, these products also have the potential to cause consumer harm. Many BNPL providers structure these products in an effort to avoid certain consumer protection obligations under the Truth in Lending Act or the Military Lending Act, which generally apply to loans that are repayable in more than four installments or are subject to a finance charge,” the senators wrote.
They added that BNPL products do not generally have many of the protections credit cards have, including those governing ability-to-repay, monthly statements, reasonable and proportional penalty fees, and the ability to raise merchant-related disputes.
“In addition, nonbank BNPL providers currently operate without meaningful oversight. They are not generally subject to federal supervision that can spot unfair, deceptive, or abusive practices or other violations of federal consumer protection laws. Consumers may be unaware of these regulatory gaps and may be erroneously led to believe that credit obtained from a BNPL provider comes with protections that are similar to those for credit cards. This regulatory gap has troubling implications,” the senators stated.
The senators requested that the CFPB conduct a review of BNPL products and take any action to improve oversight as necessary.