As a sign that Buy Now Pay Later (BNPL) has matured to become a mainstream lending product, top companies received notification from CFPB Director Chopra to answer a series of questions relating to BNPL. The sample legal document is here, and the CFPB press release is here. The press release was on December 16, 2021.
The questions are telling. One section that deals with underwriting requires BNPL to define their underwriting practices clearly. Other questions deal with credit reporting and credit scores. The routine questions about Know Your Customer will work out well for some BNPL, but might cause angst with others.
It will be interesting to see clarity on fees, particularly those invoked for late payments, which fall under category 6. Still, the detailed questions in section B will add a perspective on credit quality, which is long overdue for many BNPL lenders.
The Bureau also has interesting questions regarding customer data harvesting and monetization. In section F of their Order to File Information, CFPB identifies the requirement as a “market monitoring order,” so it will be interesting to see what information will be released and how it will be used.
According to the press release, “The orders to collect information on the risks and benefits of these fast-growing loans went to Affirm, Afterpay, Klarna, PayPal, and Zip.”
Regulation in the BNPL space is appropriate, not just to set guardrails but to also build in consumer protections and lender confidence.
Overview by Brian Riley, Director, Credit Advisory Service at Mercator Advisory Group
