As Feds increase fintech scrutiny, experts outline a BNPL regulatory framework
- After experiencing a meteoric rise in recent years, the BNPL industry is bracing itself for increased regulation in the US as government agencies are looking to widen their oversight into the fintech sector.
- With concerning signs regarding credit quality, risk intake and its effects on consumers, industry experts are advocating for more regulations and offer recommendations of what these could look like.
While BNPL brought access to affordable credit and a new opportunity to purchase goods one might not otherwise afford, the lack of regulatory oversight in the space remains a cause of concern.
The ease of use of BNPL products has been associated with increased spending and could drive negative consumer consequences, prompting US regulatory agencies to look deeper at this rapidly growing space.
Last December, the CFPB launched an investigation into the business practices in the buy now, pay later (BNPL) sector due to mounting concerns about “accumulating debt, regulatory arbitrage, and data harvesting in a consumer credit market already quickly changing with technology.”
As a result, the agency asked the five biggest players in the space – Affirm, Afterpay, Klarna, PayPal and Zip – to submit information in order to report industry practices and risks to the public.
“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.
And just last week, the CFPB went a step further and invoked a “dormant authority” to examine nonbank financial companies that could pose risks to consumers. The agency noted that nonbanks “do not have a bank, thrift, or credit union charter; many today operate nationally and brand themselves as ‘fintechs’.”
“Given the rapid growth of consumer offerings by nonbanks, the CFPB is now utilizing a dormant authority to hold nonbanks to the same standards that banks are held to. This authority gives us critical agility to move as quickly as the market, allowing us to conduct examinations of financial companies posing risks to consumers and stop harm before it spreads,” said Rohit Chopra, the bureau’s director.
Other voices in the industry are also supporting more government oversight in the BNPL sector:
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