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CFPB report details potential risks of buy now pay later loans for consumers

Consumer Reports calls for new rules to ensure consumers are treated fairly and can afford to manage their payments

WASHINGTON, D.C. – A new report issued today by the Consumer Financial Protection Bureau (CFPB) highlights how buy now pay later plans come with risks for consumers because the loans are largely unregulated and don’t come with the same protections offered by other forms of credit. Consumer Reports has urged the CFPB to strengthen oversight of the burgeoning BNPL market and adopt new rules to ensure that consumers are protected from unfair practices.

“Buy now pay later (BNPL) products have become a convenient way for consumers to delay payments and manage their expenses, but these loans come with hidden risks,” said Delicia Hand, director of financial fairness for Consumer Reports. “Consumers can encounter unexpected costs and frustration when they fall behind on payments or have a dispute over an unwanted or fraudulent purchase. The CFPB’s report makes clear that new rules are needed so consumers who rely on buy now pay later plans are treated fairly and get the same protections that are guaranteed with other forms of credit.”

Buy now pay later products are designed to provide consumers with point-of-sale loans, typically issued at 0% interest to be paid back within four payments over two months. Providers make money on the loans by charging businesses a fee when consumers use BNPL, and by assessing late fees when consumers miss a payment.

The CFPB’s report highlights a number of concerns about Buy Now Pay Later programs, including confusing and unclear disclosure agreements, excessive fees for missed payments, and problems consumers encounter getting a refund or resolving disputes over purchases. The report also notes that consumers can easily become overextended by taking out several loans with different lenders and that providers harvest and monetize data they collect from users, which may threaten consumers’ privacy and security.

Earlier this year, Consumer Reports urged the CFPB to adopt a number of reforms to better protect consumers, including:

  • Subject BNPL loans to the same underwriting standards for credit cards and other regulated loans, including an ability to repay standard that considers the borrower’s income, and expenses and obligations.
  • Create standardized disclosures to make sure customers can easily find all the information they need about interest rates, terms and fees, so they can compare products more effectively.
  • Establish a public monitoring system to ensure that returns, refund requests and other customer inquiries and complaints are processed in a timely way.

In addition, Consumer Reports has called on Congress to extend “chargeback rights” to BNPL loans, so consumers have a legal right to challenge charges for goods that were defective, or never shipped or delivered, similar to the rights consumers currently have for credit cards.

Michael McCauley, michael.mccauley@consumer.org, 415-902-9537