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Consumer Protection Action on Buy Now, Pay Later
Plus, One Consumer Fights Back Against Payday Predators
A group of U.S. Senators led by Jack Reed of Rhode Island wrote a letter to the Consumer Financial Protection Bureau (CFPB) calling for closer scrutiny and better regulation of Buy Now, Pay Later (BNPL) products (such as Klarna and AfterPay).
The Senators noted:
“While the emergence of BNPL as affordable small-dollar credit has potentially provided an alternative to more costly forms of credit, these products also have the potential to cause consumer harm. Many BNPL providers structure these products in an effort to avoid certain consumer protection obligations under the Truth in Lending Act or the Military Lending Act, which generally apply to loans that are repayable in more than four installments or are subject to a finance charge. BNPL products generally do not receive all of the protections credit cards have, including those governing ability-to-repay, monthly statements, reasonable and proportional penalty fees, and the ability to raise merchant-related disputes.
Following the Senate letter, the Consumer Bureau announced it is taking action:
The Consumer Financial Protection Bureau (CFPB) announced today it is begin to gather information from Buy Now, Pay Later (BNPL) services in order to assess the need for further regulation of the popular consumer finance products.
The orders to collect information on the risks and benefits of these fast-growing loans went to Affirm, Afterpay, Klarna, PayPal, and Zip. The CFPB is concerned about accumulating debt, regulatory arbitrage, and data harvesting in a consumer credit market already quickly changing with technology.
“Buy now, pay later is the new version of the old layaway plan, but with modern, faster twists where the consumer gets the product immediately but gets the debt immediately too,” said CFPB Director Rohit Chopra. “We have ordered Affirm, Afterpay, Klarna, PayPal, and Zip to submit information so that we can report to the public about industry practices and risks.”
An Illinois Consumer Fights Back Against Payday Predators
Law360 reports that a Chicago resident is seeking to strike back at alleged predatory lenders who used a Wisconsin tribe to skirt Illinois’ 36% rate cap on loans.
In a complaint filed Thursday in Illinois federal court, Tyanna Qualls took aim at a ring of LLCs — including LDF Holdings, Anong LLC and Availblue — purportedly owned by a Wisconsin tribe called the Lac du Flambeau Band of Lake Superior Chippewa Indians. According to Qualls, the LLCs are no more tribal than their non-Native, out-of-state beneficiaries: Jesse Phillips Lorenzo, Mark Koetting, and debt collector Rick Gwynne.
Qualls, who took out a personal loan from Anong LLC over the internet last month at a disclosed annual interest rate of 664.77%, seeks to represent a class of Illinois borrowers who received loans from LDF, Anong and Availblue with interest rates higher than 36%.
The 664% interest rate is significantly higher than the maximum rate allowed under the recently-enacted Predatory Loan Prevention Act.