Pressure is building on the Consumer Financial Protection Bureau (CFPB) to better police companies that offer consumers the ability to spread payments over time through buy-now-pay-later (BNPL) financing. 

CFPB Director Rohit Chopra began an inquiry last year into the business practices of five of the leading BNPL providers — Affirm, Afterpay, Klarna, PayPal, and Zip — asking them to provide detailed information about their business practices. The deadline to submit public comments was Friday.

In a last-minute flurry of some 40 submissions, a group of state attorneys general and a coalition of nonprofits argued in two separate comments that consumers needed to be protected from BNPL providers' services. Banking industry groups called on the CFPB to create a level playing field, and some trade groups defended BNPL practices. Early last week, there were only a few comments in response to the December request.

In one submission, the coalition of 77 nonprofit organizations recognized the benefit of BNPL providing some consumers "an affordable way to finance purchases," but launched into a litany of concerns and called on the CFPB to take a tough stance with respect to BNPL providers. 

"BNPL credit presents cause for concern, including: a lack of meaningful underwriting for a consumer’s ability to repay; hidden fees and absence of clear disclosures; lack of dispute or refund rights should a consumer be unsatisfied with their purchase; an incentive created that could lead consumers into taking on unmanageable amounts of debt; a negative impact on credit reporting; and debt collection issues," read the coalition's comment, submitted Thursday.

The coalition included the Center for Responsible Lending, the National Consumer Law Center, Better Markets, Public Citizen, Consumer Reports and the National Association for Latino Community Asset Builders.

“BNPL products offer a promise of interest-free payments, but many providers charge fees, including late fees, missed payment fees, account reactivation fees, returned payment fees, and rescheduling fees that are not clearly disclosed,” the nonprofits added.

In a separate submission, a group of 22 attorneys general raised similar concerns, calling on the CFPB to “prioritize robust consumer protections” during its review of the BNPL sector. 

“We have concerns about new and supposedly innovative financial products that promise to disrupt and democratize the industry but push consumers into cycles of debt and carry some of the same terms and features as other expensive and predatory financial products,” the attorneys general said in a comment submitted Friday.

Initiating the federal BNPL inquiry

Chopra initiated the inquiry and request for comments in December after complaints by some Democratic senators and consumer activists alleging consumers were taking on more debt than they could afford.

"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," he said.

The BNPL craze started in Australia with pioneer providers such as Afterpay, and over the past decade spread to Europe, before gaining traction in the U.S. over the past few years. Consumers made an estimated $100 billion in purchases using BNPL financing last year — four times the level of such purchases in 2020, Forbes reported, citing consulting firm Cornerstone Advisors. The service is particularly popular with young consumers who often access it via apps on their phones.

The Bank Policy Institute called on the CFPB in a comment Friday to “clarify that nonbank BNPL providers are held to the same standards as banks with regard to consumer protections, responsible lending, and consumer data privacy requirements."

The Consumer Bankers Association, meanwhile, asked the bureau to institute a level playing field for banks and the fintechs offering BNPL credit in its letter to the CFPB submitted Friday. 

"The CFPB should reaffirm that non-bank BNPL lenders, like banks, must engage in responsible lending practices, including providing clear and conspicuous upfront disclosures on all the key economic/pricing terms associated with a BNPL product," the trade group wrote.

A Friday comment from the National Association of Convenience Stores voices concern about credit card fees associated with rising buy-now-pay-later sales, particularly given Mastercard’s plans to enter the BNPL market. 

“CFPB therefore should consider holding BNPL services to the standards applicable to analogous forms of credit,” the organization wrote.

Consumer Reports noted, in a Thursday filing, that consumers may become confused about the terms of their loans because of varying web and digital app designs. It has also logged problems for consumers in returning purchases. 

“Consumers who use BNPL with smaller companies or less reputable websites may face a higher frequency of difficulties,” the outlet wrote.

BNPL backers offered input, too

BNPL operators deny critics' claims that they are taking advantage of consumers or are exploiting loopholes in laws and regulations.

“Today, BNPL providers are compliant with consumer protection laws and regulations such as anti-money laundering, privacy, and electronic fund transfers enforced by the CFPB, Federal Trade Commission, and numerous state regulators,” the Electronic Transactions Association (ETA) wrote. "New public policies for BNPL products should complement, and not conflict with, existing laws and regulations as well as private sector rules and practices.”

The ETA’s views were echoed by The Financial Technology Association (FTA) — which, like the ETA has BNPL providers as members. It underscored the oft-cited statistic that the average American can’t afford a $400 emergency expense.

“Buy Now-Pay Later is a valuable tool for consumers to manage their cash flow and avoid unnecessary interest and fees,” FTA CEO Penny Lee said in a Friday press release that noted the organization's submission to the CFPB. “BNPL services are subject to federal and state consumer protection laws and regulations and provide low-risk, low-cost payment options to consumers.”

Some consumer activists weighed in earlier this month. A 26-page report released March 10 by the U.S. Public Interest Research Group documents a rise in consumer complaints about BNPL, concerning hidden fees and debt collection issues. U.S. PIRG questioned whether policing has kept up.

Critics outside the U.S. submitted comments to the CFPB, too. 

“BNPL products are currently contributing to the extent and severity of financial hardship in Australia,” wrote two nonprofits, Financial Counselling Australia and Consumer Action Law Centre. “This poses a substantial risk to both individuals and the community."