Buy Now Pay Later consumer finance products should be regulated as traditional credit cards, the National Community Reinvestment Coalition (NCRC) wrote Friday to the Consumer Financial Protection Bureau (CFPB).
“Buy Now Pay Later is understandably seductive to consumers and retailers alike – but when you drill down on how it actually works, it is obvious that it must be covered by traditional and effective consumer protection laws,” NCRC President and CEO Jesse Van Tol said. “This new finance product is spreading too quickly to remain a ‘Wild West’ without nationwide oversight – and we applaud the CFPB for engaging with community and industry leaders to protect Americans from being harmed.”
NCRC’s comment letter urges the CFPB to place Buy Now Pay Later (BNPL) products under the existing regulatory structures of the Truth-In-Lending Act (TILA) and Regulation Z. These products operate similarly to credit cards that TILA covers, but as currently defined, leave consumers without important protections. Though branded and marketed as a separate form of consumer credit, the letter shows that service providers clearly meet the definition of “card issuers” under TILA and Regulation Z.
Defining BNPL as credit cards by another name and regulating them accordingly will not reduce access to credit. It will, however, ensure that shoppers are protected from potential abuses – which is especially important given the rapid rates of adoption of BNPL.
“Because these services often appear in online carts as an alternative to a credit card,” Van Tol said, “consumers may not realize that choosing BNPL means forfeiting important protections until it is too late. The 45 million people who used a BNPL product last year did not have dispute resolution rights, did not get uniform and concise statements and may have been offered credit they would struggle to repay.”
The number of BNPL customers has increased by 300% per year since 2018, the letter notes. Yet providers are not currently required to follow TILA’s sensible and proven rules around fee disclosures, dispute resolution, account statements and other basics of providing fair and honest credit to users.
NCRC’s full comment letter detailing why and how the CFPB should bring these products under the existing TILA regime can be read here.