CFPB adds more fuel to the push for BNPL regulation

Article by Adriana Nunez | Mar 6, 2023

The news: The Consumer Financial Protection Bureau (CFPB) uncovered key demographic trends among buy now, pay later (BNPL) users and the payment method’s underlying risks in a report.

Here are the highlights:

BNPL has been around for several years now, but the number of BNPL loans issued to consumers increased almost 10-fold between 2019 and 2021.
Black, Hispanic, and female consumers were more likely to use BNPL than white, non-Hispanic, and male consumers. Those earning between $20,001 and $50,000 were also more likely to use BNPL. Consumers under age 35 had a much higher probability of using BNPL than older consumers.
BNPL users have lower average credit scores than non-users—but this difference was present even before the payment method gained traction in the US.
The majority of BNPL users also have access to traditional credit products, including credit cards and personal loans, though these options tend to be more expensive.
BNPL users are more likely to be financially strained than nonusers: BNPL users tend to have lower liquidity and savings, a higher likelihood of revolving at least one credit card, and a higher risk of overdraft.

Why it’s worth watching: The CFPB’s data uncovers concerning trends among BNPL users that could add more fuel to the push for regulation.

BNPL users may view the payment method as a cheaper, less risky alternative to other credit products. So while many consumers view BNPL as a viable credit card alternative, the payment method isn’t currently being regulated the way cards are. This may expose distressed consumers to higher debt risks.

Millennials and Gen Zers tend to use BNPL more than older generations who may have a firmer financial standing.
Nearly half of millennials and Gen Zers live paycheck to paycheck and worry about whether they can cover their expenses, according to a Deloitte survey.

Not having proper regulatory measures in place to educate and protect consumers could have a detrimental impact on their financial health. That may be why some BNPL providers, like Klarna, are establishing partnerships or launching services to offer consumers financial literacy education.

What’s next? The CFPB wants to understand whether using BNPL improves or exacerbates the financial health of consumers under economic distress. Further research could determine how the government moves forward with regulating BNPL providers.