BPI Comments on CFPB Evaluation of Buy-Now-Pay-Later Providers

Ladies and Gentlemen:

The Bank Policy Institute[1] appreciates the opportunity to comment on the Notice and Request
for Comment Regarding the Inquiry into Buy-Now-Pay-Later (BNPL) Providers (“Notice”)[2]
issued by the Consumer Financial Protection Bureau.

In recent years, increasing consumer demand for digital and interactive financial products and
services has dramatically changed the marketplace, accelerating banks’ efforts to leverage market developed technological solutions to help meet the rising demand. At the same time, an increasing number of fintechs and other nonbank companies providing financial products and services have entered the marketplace. BPI supports innovation and welcomes competition, provided that consumers are protected through consistent regulation and oversight of all market participants. Both consumers and the U.S. financial system are put at risk when nonbanks offering banking products and services are not required to adhere to the same consumer regulatory and other protections as banks and when they are able to offer banking products and services with far more limited – if any – onsite supervision to determine compliance with those regulations.

The increasing shift to digital financial products and services has been accelerated even further
by the COVID-19 pandemic, which moved a significant volume of commerce online. Innovations in products arising out of this trend, coupled with different financial product preferences of different generations, has spawned the development of financial products. One such product is Buy Now, Pay Later, or BNPL.

We agree with the Bureau’s definition of BNPL as a consumer financial product used at the point
of sale to pay for a purchase in 4 or fewer payments with no finance charges. This definition is
consistent with common understanding.[3] It also appropriately identifies the type of products about which the CFPB has expressed interest in gathering information as these products have grown in use exponentially in recent years and yet may not be subject to key consumer protection regulations. In contrast to this category of credit offerings, other types of consumer finance products, such as those that are repayable in five or more installments, those that have interest rates, and those that are “oncard” (i.e., a credit card feature and tied to the credit line), are expressly covered by the Truth in Lending Act (“TILA”) and other consumer protection laws.[4] These products should be excluded from the definition of BNPL, as many consumer protection requirements already apply to them and such application is well understood in the marketplace. For the purpose of this comment letter, we use BNPL to refer to a consumer financial product used at the point of sale to pay for a purchase in 4 or fewer payments with no finance charges.

While broader consumer protections within the CFPB’s statutory and regulatory authority, such
as those focused on transparency, like the prohibition on unfair, deceptive or abusive acts or practices (“UDAAP”), already apply to BNPL providers and products, it is important for the CFPB to take additional steps to ensure that consumers are duly protected when using a BNPL product, whether offered by a bank or a nonbank.[5] Nonbank companies providing BNPL products are not subject to the same level of direct, consistent oversight as banks for compliance with consumer protection regulations. In addition, banks are subject to general expectations of safety and soundness and responsible banking and to regular, direct supervision by their primary federal regulators for compliance with prudential and many other regulations to ensure the banks’ safety and soundness and consumer data protection.

Therefore, it is important that the CFPB clarify that nonbank BNPL providers are held to the
same standards as banks with regard to consumer protections, responsible lending, and consumer data privacy requirements. Thus, we recommend that the CFPB clarify the expectations regarding all BNPL products, regardless of whether provided by a bank or nonbank, including by:

  • Requiring BNPL providers to disclose all relevant product information in a clear, transparent, and truthful manner in their marketing and product-related materials, consistent with the
    prohibition on UDAAP;
  • Reiterating to BNPL providers the expectations pertaining to (i) truthful disclosure of credit
    reporting practices, and (ii) accurate reporting inherent in the FCRA and Regulation V.
  • Emphasizing the importance of conducting creditworthiness assessments and maintaining
    reasonable merchant and fraud dispute processes for nonbank BNPL providers;
  • Requiring BNPL providers to ensure that their customers enrolled in automatic payments also
    have the ability to revoke authorization for automatic payments without unnecessary obstacles;
  • Coordinating with other regulators to reaffirm that nonbank BNPL providers are subject to the
    same privacy and cybersecurity requirements and oversight for protecting consumer data as
    banks and other holders of consumer financial data.

Finally, pursuant to Section 1024 of the Dodd-Frank Act, the CFPB has authority over “any
covered person who . . . is a larger participant of a market for other consumer financial products or services, as defined by rule.”[6] To date, the CFPB has defined “larger participants” to include those in the consumer reporting, consumer debt collection, student loan servicing, international money transfer, and automobile financing markets, which has allowed the agency to examine the activities of these larger participants in a similar manner to those covered persons routinely supervised by the CFPB pursuant to Section 1025.7 BPI recommends that the CFPB consider using its authority under Section 1024 to engage in a larger participant rulemaking in order to supervise the activities of nonbank BNPL providers. Engaging in such a rulemaking would subject larger BNPL providers to the same level of direct, consistent oversight as banks for compliance with consumer protection regulations.

To read the full comment letter, click here, or click on the download button below.

[1] The Bank Policy Institute is a nonpartisan public policy, research and advocacy group, representing the nation’s leading banks and their customers. Our members include universal banks, regional banks and the major foreign banks doing business in the United States. Collectively, they employ almost 2 million Americans, make nearly half of the nation’s small business loans, and are an engine for financial innovation and economic growth.

[2] Notice and Request for Comment Regarding the CFPB’s Inquiry Buy-Now-Pay-Later (BNPL) Providers, 87 Fed. Reg.
3511 (January 24, 2022).

[3] See Hidden Risks of Buy-Now, Pay-Later Plans | BNPL – Consumer Reports

[4] 15 U.S.C. § 1601 et seq.

[5] 5 12 U.S.C. § 5531 et seq.

[6] 12 U.S.C. § 5514 (a)(1)(B).