CFPB’s New Rules for BNPL Could Come by Year’s End

The exponential growth of buy now, pay later (BNPL) in the last two years, with approximately $97 billion in transactions in 2021, has brough significant regulatory interests around the world, including the U.S. In December 2021, the Consumer Financial Protection Bureau (CFPB) launched an inquiry against five BNPL providers to learn more about this product. At the same time, the agency also asked the public to submit comments and around 50 different stakeholders sent their opinions.

One of these comments was submitted by Michael Emancipator, vice president and regulatory counsel at the Independent Community Bankers of America (ICBA), who told PYMNTS that BNPL providers should be subject to additional regulatory oversight to ensure consumers are protected.

The CFPB hasn’t publicly said what it is planning to do with all the information and what the next steps are, but Emancipator believes that the chance of having new regulation in this space is high. “There’s the whole scope of proponents and opponents and varying degrees, but it seems like there was agreement that this product, that this space should be regulated. I am not familiar with anyone that was advocating against regulation.”

The areas of concern for many of the respondents to the CFPB’s request include the lack of transparency in fees, the impact on credit scores if a consumer fails to pay back a credit or the light or no credit checks before a consumer can take a credit.

The regulation should focus on BNPL providers rather than the products, as non-supervised institutions that don’t need to comply with the same rules as banks or credit cards may end up harming consumers, Emancipator argues. One option for the new regulation could be to extend the protections offered by Truth in Lending Act (TILA) to BNPL. TILA, for instance, offers credit card users additional protections in terms of transparency, fees disclosure or mechanisms to settle disputes.

However, he thinks that extending automatically TILA to BNPL products is “a little bit less likely,” but it is possible that “some sort of requirements that are in TILA” may be applicable to these new products.

But regulation is not the first or the only solution to address potential pitfalls associated with BNPL. Educating consumers about how these products work is of utmost importance and “the best way for consumers to be able to protect themselves.” Many consumers are learning a hard lesson here. Young people are using BNPL as a payment option, using multiple accounts, without realizing that this is a credit product, and when things don´t go well, then they end up paying more than they expected. “I wouldn’t be surprised if the Bureau does come out with something a little bit more formal [in education] especially if this area does continue to grow.”

In the end, regulating this space will come down to “who is going to be the best provider of those products.” The regulatory environment will make sure that bad actors are weeded out, so consumers are protected. The risk with unsupervised product providers, whether it is BNPL providers or any other product provider, is that some of these appear overnight but some of them can go as quickly, causing a big impact on consumers, said Emancipator.

The CFPB may be considering rulemaking, but this is not the only option it has. The original letter sent to the BNPL providers left the door open for potential enforcement actions against some or all the providers if needed.

But for Emancipator, the likeliest option right now is a proposed rulemaking. The Bureau may have ready a report summarizing all the data and comments by October and maybe by the end of the year, we could have a proposed rulemaking.

Read more: 21 Attorneys General Urged CFPB to Regulate BNPL