CFPB Calls for Further Research Into BNPL’s Impact on Financial Health

The Consumer Financial Protection Bureau (CFPB) said there is a need for more research into buy now, pay later (BNPL) after finding that BNPL borrowers held higher balances on other credit lines.

“The importance of BNPL in the credit profiles of BNPL borrowers underlines the need for further research to understand how this growing financial product causally impacts borrowers’ financial health,” the CFPB wrote in a report released Monday (Jan. 13).

The regulator’s report found that more than one-fifth of consumers with a credit report used BNPL loans in 2022, according to a Monday press release.

It also found that more than 60% of BNPL users had simultaneous BNPL loans, nearly two-thirds of BNPL loans went to consumers with credit scores that were subprime or lower, and BNPL borrowers had higher balances on other credit lines such as personal loans, retail loans, student loans, credit cards and subprime alternative financial services lenders, per the release.

“Before first-time BNPL use, consumers’ average credit card utilization rates increased, suggesting that less available credit card liquidity may encourage consumers to use BNPL,” the release said.

CFPB Director Rohit Chopra said in March that the agency planned to look closer at BNPL providers because, he said, some are using personal data to “induce more purchasing or borrowing” on the part of consumers.

In May, the CFPB ruled that BNPL vendors are credit card providers and must provide some key legal protections and rights delivered by conventional credit cards, including the consumer’s right to dispute charges and demand a refund from the lender.

“Buy now, pay later is now a major part of the consumer credit market, as these loans provide a meaningful alternative to other options for consumers,” Chopra said at the time. “However, the CFPB wants to ensure that these new competitive offerings are not gaining an advantage by sidestepping the longstanding rights and responsibilities enshrined under the law.”

BNPL has emerged as a transformative that can help turn around the credit situation of consumers who do not have a good understanding of how credit scores work or how they can be improved to qualify for credit products, according to the PYMNTS Intelligence and Sezzle collaboration, “How Credit Insecurity is Changing U.S. Consumers’ Borrowing Habits.”