Merchant Policies Could Come Under CFPB Scrutiny as Part of BNPL Inquiry

Reminiscent of government hearings in the late 1960s over potential credit card debt dangers, the Consumer Financial Protection Bureau (CFPB) is now inquiring into issuance, refund and fee policies of buy now, pay later (BNPL) brands, who must show that their terms don’t let consumers get in too deep on alternative credit without knowing potential risks.

A 16-page order from the CFPB states that “The Bureau is monitoring Buy Now, Pay Later (BNPL) products and consumer usage of these products. This Order will provide information necessary to conduct such analysis in compliance with Congress’ mandate that the Bureau monitor for risks to consumers in the offering or provision of consumer financial products or services, including developments in markets for such products or services.”

Companies receiving the CFPB order — Affirm, Afterpay, Klarna, PayPal and Zip — have until March 1, 2022, to respond. As of this writing there are no statements from the companies.

The CFPB first warned consumers about accumulating BNPL debt in a July blog, but the order of Dec. 16 takes in everything from consumers having multiple BNPL loans (loan stacking) to “Indirect BNPL Data” collection, fee structures and even underlying BNPL business models.

Markets took the news seriously. The day after the probe was announced, CNBC reported that “U.S.-based Affirm’s shares closed down by 11% Thursday, while Australian companies Afterpay, Zip and Sezzle on Friday dropped 8%, 6% and 10%, respectively.”

See also: BNPL Under Global Regulatory Scrutiny, With UK as Likely Frontrunner

An informal analysis of return and refund policies found on BNPL websites in question shows these practices clearly explained, though returns and refunds are just one part of CFPB’s order.

For example, the Affirm website states, “In order to get a refund, please contact the store where you bought your item to request a refund. They can let you know if a return is possible and how much the refund will be, according to their own return policy.”

In Afterpay’s case, terms are that “Returns are always subject to the individual merchant’s policy, which can typically be found on their website or by contacting them directly. If you make a return and the merchant processes a refund, it will automatically be reflected in your Payment Schedule.”

Klarna states that “Refunds are processed in different ways, depending on the status of your payment schedule, how much you have paid and if the store has processed a full or partial refund.”

For PayPal Pay In 4, terms are that “If you return the item you purchased using Pay in 4, you will receive a refund directly from the merchant. If the refund is not issued immediately, you will need to continue making your Pay in 4 repayments until you receive your refund.”

As for Zip, it states that “Returns and refunds are handled by the merchant from whom you originally purchased your items, not by Zip. Please contact the store or retailer directly to start the refund process.”

In sum, BNPL lenders that received the CFPB order defer to the return policies of merchants where point-of-sale credit is originally issued, in most cases pushing refunds to whatever payment method used. In certain cases, refunds can become account credits. In other cases, refunds from one purchase can be used to cover outstanding payments on another BNPL loan.

How returns and refunds factor into any CFPB decision remains to be seen as the probe is also looking into fees and other practices of BNPL brands, all now awaiting a March 2022 review.

Additionally, Equifax is reportedly preparing to factor BNPL debt into credit profiles starting next year, which may bring more scrutiny as BNPL applications and balances.

See also: CFPB Probes Big Five Buy Now, Pay Later Providers Over Data Use, Debt Accumulation