What’s Happening
The Bank Policy Institute commented today on the Consumer Financial Protection Bureau’s evaluation of five Buy-Now-Pay-Later providers. BPI makes six recommendations to the Bureau intended to better protect consumers and their data when they use BNPL products, including by requiring product providers to increase transparency and enhance data privacy and cybersecurity.
What BPI is Saying
“Buy-Now-Pay-Later products offer consumers the flexibility to purchase a product and pay for it over several weeks, but the terms are not always clearly disclosed to consumers,” stated Paige Pidano Paridon, BPI senior vice president and associate general counsel. “Consumers deserve honest information about how much they will owe, when to pay and what recourse they have if they encounter issues with a product or merchant, regardless of how they choose to check out.”
BNPL Resembles Existing Installment Loans
BNPL products closely resemble existing installment loan products but are exempt from certain consumer protection laws — such as the Truth in Lending Act — because providers do not charge interest and require payment in fewer than five installments. Furthermore, many of these products are offered by nonbanks that are not subject to the same regular, direct, ongoing supervision for consumer protection or data privacy obligations as regulated financial institutions.
BPI Recommends the CFPB Ensure Robust Consumer Protections
To help ensure that consumers are subject to robust protections when using BNPL products, BPI recommends that the CFPB:
- Require BNPL providers be clear, transparent and truthful in disclosing product information in marketing and product-related materials;
- Reiterate to BNPL providers that credit reporting practices be clearly and accurately communicated so that consumers understand how their data is being shared with the credit reporting agencies and how that data may affect their future ability to access credit;
- Emphasize the importance of conducting creditworthiness assessments and maintaining reasonable merchant and fraud dispute processes for nonbank BNPL providers so that customers aren’t saddled with debt or left defenseless following a merchant dispute;
- Require BNPL providers to give auto-pay customers the option to revoke payment authorization without unnecessary obstacles;
- Affirm BNPL providers are subject to the privacy and cybersecurity requirements and oversight for protecting consumer data in the same way as banks and other holders of consumer financial data. This effort should be pursued in coordination with other regulators; and
- Consider engaging in a larger participant rulemaking to supervise the activities of nonbank BNPL providers, thereby subjecting those providers to consumer protection regulations.
Go deeper: To access a copy of the letter, please click here.
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About Bank Policy Institute.
The Bank Policy Institute (BPI) 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.
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