Will enforcement precede rulemaking for Buy Now, Pay Later?
The CFPB’s long-awaited Buy Now, Pay Later (BNPL) report is out along with a roadmap from Director Chopra describing next steps. The core finding is that BNPL is a “substitute for credit cards” in both design and usage. In their view, that leads to three areas of risk of consumer harm, including:
- Inadequate or inconsistent consumer protections, disclosures, dispute resolution processes, etc.
- Harvesting consumer data from their proprietary apps and then monetizing that in ways that impact consumer privacy and choice.
- Loading consumers with too much debt and not reporting this debt to the credit bureaus which prevents industry-wide transparency. Note that the language they use about debt “stacking” and lack of credit reporting furnishing are reminiscent of earlier Bureau criticisms of the small dollar/payday lending industry.
With that perspective in mind, it’s no surprise that next steps are rulemaking and enforcement. Typically, rulemaking precedes enforcement and takes time to unfold through the comment and notice periods. But in this case, the Bureau reminds us it already has enforcement authority over BNPL and may very well use it to issue conduct enforcement actions long before an interpretative rule is issued. In particular, the report’s focus on debt “stacking” and lack of credit reporting appear as areas of potential early enforcement. Either way, the message is clear: Companies need to act now to address their risks.
- Assess gaps between your BNPL product and credit cards. The Bureau has a well documented framework for examining credit card products found in their examination manual and related modules that can be used as a guide for starting this process.
- Compare your current compliance management system and staffing to ensure you can meet regulatory expectations that lie ahead. Key areas that are likely to need redesign or more staffing are dispute resolution, including escalated complaints, along with bureau reporting processes and ensuring accuracy.
- Develop and provide internal training to the business and marketing teams to ensure they understand the new framework and associated risks as well as any changes to processes or programs that result.
Finally, in whatever timeframe the rule and/or enforcement unfold, there’s no doubt the Bureau’s report marks an inevitable evolution for BNPL. Moving swiftly to adapt ensures a competitive edge in the marketplace.
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