Buy-it-now, pay-later services have exploded in popularity with five BNPL lenders reporting a nearly 10-fold increase in the number of loans granted since 2019, the Consumer Financial Protection Bureau said in a study released today. Late last year, the agency issued market surveillance orders to five lenders: Affirm, Afterpay, Klarna, PayPal and Zip. The companies said they offered 180 million loans totaling more than $24 billion in 2021, up from 16.8 million loans totaling $2 billion two years prior.
The CFPB study also found that 73% of applicants were approved for credit in 2021, compared to 69% in 2020; that the average purchase financed by a BNPL loan increased from $120 to $135 during the same period; and that 10.5% of borrowers were charged at least one late payment penalty in 2021. Meanwhile, 89% of loan repayments were made to a debit card last year, virtually unchanged from each of the previous two years.
The CFPB also identified “several areas of risk of consumer harm,” such as “inconsistent consumer protections” and “data harvesting,” and said it will “identify potential interpretive guidance or rules to be issued with the aim of ensuring that buy now, pay later. lenders adhere to many of the basic protections that Congress has already established for credit cards. The agency said that as part of the review, it would subject BNPL lenders to “appropriate” supervisory reviews like those of credit card companies.
In a March letter to the CFPB, the ABA expressed concern about the rapid growth of BNPL products offered by non-banks and noted that ABA members were going to great lengths to comply with laws. applicable to consumer credit and provide fair and responsible access to credit. “To ensure consistent protections, it is imperative that these baseline protections and sound practices be extended to all consumers by all BNPL providers,” the association said. “Non-bank BNPL providers should be monitored for aggressive origination and underwriting practices, inadequate disclosures and unpredictable credit reporting practices. Promoting good practices with respect to these basic consumer protections would improve the efficiency and competitiveness of the BNPL market and the consumer credit market as a whole.