Attorney General Bonta: CFPB Should Scrutinize Buy-Now-Pay-Later Financing to Address Compliance with Consumer Protection Laws

Friday, March 25, 2022
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OAKLAND – California Attorney General Rob Bonta today, as part of a multistate coalition, urged the Consumer Financial Protection Bureau (CFPB) to closely scrutinize and initiate rulemaking to regulate Buy-Now-Pay-Later financing providers. Buy-Now-Pay-Later financing has exploded in popularity in recent years with the rise of online shopping, allowing consumers to pay for a purchase in installments instead of all at once. While these arrangements are often used for large purchases such as furniture, jewelry, and appliances, Buy-Now-Pay-Later financing is increasingly available for everyday expenses, such as filling up a tank of gas. While this financing is often advertised as a safe and affordable way to access credit, the coalition is concerned that this largely-unregulated financial product may instead trap vulnerable consumers into debt they are unable to afford and cause long-term damage to consumers' financial health.  

“Innovative financial products promise to democratize the financial industry, but their shiny new packaging may conceal many of the same hallmarks of the predatory loans that have long driven consumers into a never-ending cycle of debt,” said Attorney General Bonta. “The fact is: The Buy-Now-Pay-Later industry is largely unregulated, and we need the CFPB to take a close look at these financial products and take steps to stop vulnerable consumers from being being taken advantage of.”

State attorneys general have long worked to hold predatory lenders accountable for preying on vulnerable consumers through attempts to evade consumer protection laws. While financially secure consumers may benefit from Buy-Now-Pay-Later arrangements, they pose a risk to vulnerable borrowers, who, due to the ease of accessing Buy-Now-Pay-Later credit, may end up overextended and trapped in debt without a clear understanding of the lender’s terms and the consequences of defaulting on their payment. The attorneys general are concerned that Buy-Now-Pay-Later providers’ claims of quick application approvals with no credit checks, no interest or fees, the ease of making payments, and overall safer products may mask features similar to those of other expensive and predatory financial products.

In the letter, the attorney generals urge CFPB to take a close look at Buy-Now-Pay-Later financing providers' policies and practices, including:

  • Analyzing whether and how providers ensure consumer rights and protections and comply with general requirements to refrain from unfair, deceptive, and abusive practices;
  • Ensuring providers clearly and accurately disclose all fees and charges to consumers and that any fees and charges are reasonable and proportional to the overall cost of the loan;
  • Reviewing what steps, if any, providers take in considering ability-to-repay and the type of information they rely on;
  • Considering Buy-Now-Pay-Later policies and procedures for credit reporting and the information that providers furnish to credit bureaus;
  • Inquiring into provider privacy policies, as well as how providers collect, use, sell, and protect consumer data; and
  • Monitoring partnerships between providers and for-profit schools and online courses and consider issuing guidance or rulemaking clarifying regulations for Buy-Now-Pay-Later credit used to finance education. 

Attorney General Bonta joins the attorneys general of Illinois, Colorado, Connecticut, Delaware, Hawaii, Iowa, Maine, Maryland, Massachusetts, Michigan, Minnesota, Nevada, New Jersey, New York, North Carolina, Oregon, Pennsylvania, Rhode Island, Vermont, and Washington, as well as the Hawaii Office of Consumer Protection, in filing the letter.

A copy of the letter can be found here.

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