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Should Buy Now, Pay Later be Regulated like Credit Cards?
Plus, notes on medical debt and car safety
A coalition of consumer groups issued a joint letter to the Consumer Financial Protection Bureau (CFPB) urging action to regulate buy now, pay later products such as AfterPay, Klarna, Affirm, and others.
The groups — including Consumer Federation of America (CFA) and National Consumer Law Center (NCLC) — have expressed alarm at the rapid growth of the largely unregulated consumer credit products. In their letter, the coalition recommends that buy now, pay later products be subject to federal Truth in Lending (TILA) rules and be treated like credit cards.
“BNPL products have largely evaded oversight by federal and state regulators,” the groups stated. “Although these products could have a place in meeting consumer needs if they operate as promised, they pose a risk to consumers and should be covered by basic consumer protections.”
The consumer advocacy groups raised a number of concerns including: a lack of meaningful underwriting for a consumer’s ability to repay, which could lead to unmanageable debt; hidden fees and absence of clear disclosures; problems with disputes and refunds; confusing payment schedules for multiple purchases; deceptive claims about credit building or potentially negative impact on credit reporting; and debt collection issues.
“Marketing of Buy-Now-Pay-Later credit is enticing, with promises of instant approval and no impact on a consumer’s credit,” said the groups. “However, many providers are not conducting meaningful underwriting to assess a borrower’s ability to repay, allowing consumers to accumulate unaffordable amounts of debt.”
The call for regulation from consumer groups comes as a separate survey of consumers indicates that many who use buy now, pay later ultimately regret the decision.
The survey revealed:
More than 45% of Americans have now signed up for at least one Buy Now Pay Later plan. That’s compared to 31% as of April 2021 — a 41% increase in usage over 10 months. Of those who’ve used the plans, 22% regret their decision, saying they wish they’d never signed up for a plan at all.
More than 50% of respondents have been paying off multiple Buy Now Pay Later plans at one time.
The consumer groups, in their comment letter, recommend five specific action steps to improve consumer protection when it comes to buy now, pay later:
● Apply credit card protections of the Truth in Lending Act (TILA), including the provisions of the Credit Card Accountability Responsibility and Disclosure (CARD) Act. Applying credit card rules to BNPL credit would provide consumers with basic protections, such as dispute and chargeback rights, cost transparency, uniform disclosures and statements, reasonable penalty fees, and underwriting for a consumer’s ability to repay.
● Issue a larger participant rule to bring the BNPL market (along with other installment loan markets) within the CFPB’s supervision.
● Prevent or take action against unfair, deceptive or abusive acts and practices (UDAAPs) and ensure compliance with fair lending laws.
● Enforce the Electronic Fund Transfer Act’s ban on compulsory repayment of credit by preauthorized electronic fund transfer.
● Conduct research on the impact of the BNPL market on consumers and on their credit reports.
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