On March 25, Illinois State Attorney General Kwame Raoul, along with 18 other state attorneys general (state AGs), provided comments to the Consumer Financial Protection Bureau (CFPB) regarding the CFPB’s investigation of companies that offer consumers the option of splitting the cost of their purchases into installments, also known as “buy now, pay later” (BNPL) products . The 19 state GAs support and offer seven recommendations in response to the CFPB survey in their comments.
For context, BNPL products often require a 25% deposit due at checkout; the balance is then usually repaid in up to four instalments. The application process for BNPL products is quick and involves relatively little information from the consumer. The proceeds are often interest-free, although there are charges for late payments. BNPL products offer consumers greater payment flexibility and, as some industry players argue, are a safer and more accessible alternative to credit card debt, as BNPL is available to consumers with limited credit histories. or subprime.
But BNPL products can also come at a cost. According to the CFPB press release of December 16, 2021, the CFPB is concerned about three aspects of the BNPL market:
- Accumulation of debts. The flexibility of this payment option can hurt consumers who accept multiple payment plans. If consumers are unable to make their payments, they may be charged both by their bank account and by the BNPL provider.
- Regulatory Arbitration. Since BNPL companies may not be properly assessing which laws apply to their productions, the CFPB’s investigation aims to determine whether BNPL’s products provide the correct information, whether they apply to the products of the BNPL has protections similar to some of the protections provided by credit card companies, and whether the BNPL company follows the correct rules regarding late fees and other policies.
- Data gathering. Some BNPL companies have used their customers’ payment histories for marketing purposes. The CFPB seeks to better understand how BNPL companies collect and monetize data to ensure BNPL companies comply with applicable regulations and consumers are not harmed.
As explained in the March 25 Press release of Illinois Attorney General Kwame Raoul, the CFPB has sought input from state attorneys general in this investigation. The comments of this eventuality from 19 State AG urge the CFPB to prioritize strong consumer protections in this sector and to take the position that BNPL products are credit products, contrary to the position taken by many many BNPL companies.
While the concerns of state AGs broadly echo the three areas the CFPB outlined in its December 2021 press release and similarly cite the exponential growth of this particular product, the letters make the following specific recommendations:
- First, state AGs have been highly critical of BNPL companies for not providing strong underwriting or any consideration of a consumer’s ability to repay the “loan”. Consequently, the AGs of the State ask the CFPB to identify the possible steps of these companies to assess the repayment capacity of a consumer.
- Second, state MAs encourage the CFPB to analyze BNPL vendor relationships with credit reporting agencies to ensure that companies provide accurate information to credit bureaus and address reporting disputes. consumer credit in a fair and timely manner.
- Third, the state attorneys general recommend that the CFPB evaluate the disclosures that BNPL companies make to consumers and, if necessary, adopt regulations to ensure appropriate disclosure of reasonable fees and charges.
- Fourth, since some BNPL companies may not offer the same protections as credit card companies with respect to the return and dispute of defective goods, state AGs are asking the CFPB to review resolution processes BNPL supplier disputes.
- Fifth, recognizing the potential for consumers to be overwhelmed with payments, the States’ MAs encourage the CFPB to review the debt collection practices of BNPL providers when consumers default on their payment obligations.
- Sixth, consistent with the CFPB’s concern about data collection, the state MAs recommend that the CFPB review the privacy policies of BNPL companies to determine how they collect, use and protect consumer data.
- Finally, the states’ AGs urge the CFPB to examine partnerships between BNPL companies and non-accredited online course providers, such as “tech boot camps that have partnered with non-bank lenders.”
Our catch. This letter shows that regulators at both the federal and state level have continued to focus on the BNPL industry. The state AGs, in their comment letter to the CFPB, demonstrate an even tougher regulatory stance than the federal government, calling BNPL products outright “credit products” and calling for oversight of all aspects of these products, from underwriting to debt collection. Additionally, the 19 state AGs are considering expanding the scope of this survey to companies that partner with BNPL companies, including for non-accredited education companies. Therefore, BNPL firms and their partners should closely monitor the CFPB’s reaction to the state AGs’ letter, carefully review their internal compliance policies, and prepare for further scrutiny from state and federal regulators within months. coming.
 The state GAs of Illinois, California, Colorado, Connecticut, Delaware, Hawaii, Iowa, Maine, Maryland, Massachusetts, Michigan, Minnesota, Nevada, New Jersey, New York, North Carolina, Oregon, Pennsylvania, Rhode Island, Vermont and Washington, as well as the Hawaii Office of Consumer Protection, have signed this letter.