Buy Now, Pay Later and Credit Reporting
In December 2021, the Consumer Financial Protection Bureau (CFPB) launched a market monitoring inquiry into Buy Now, Pay Later (BNPL). Buy Now, Pay Later is a short-term, no-interest consumer credit product that has become nearly ubiquitous at the point of purchase online and, increasingly, in brick-and-mortar stores. Issued to five BNPL firms, the inquiry ordered information and data on several key areas of consumer impact, including data furnishing by BNPL firms to consumer reporting companies for inclusion in credit reports. We noted that BNPL credit is fast-growing and expressed concerns about the potential for people to accumulate debt by making multiple BNPL purchases with multiple companies.
Until recently, few BNPL lenders furnished information about consumers to the nationwide consumer reporting companies (NCRCs). This lack of furnishing could have downstream effects on consumers and the credit reporting system. It could be bad for BNPL borrowers who pay on time and may be seeking to build credit, since they may not benefit from the impact that timely payments may have on credit reports and credit scores. It may also impact both BNPL lenders and non-BNPL lenders seeking to understand how much debt a prospective borrower is carrying.
The CFPB believes that when BNPL payments are furnished it is important that lenders furnish both positive and negative data. We would also like to see the industry adopt standardized BNPL furnishing codes and formats appropriate to the unique characteristics of the product. Such standardization would in turn facilitate the consistent and accurate furnishing of BNPL payment information. Furthermore, consumer reporting companies should incorporate the BNPL data into core credit files as soon as possible and ensure that BNPL data are accurately reflected on consumer reports. Finally, we’d expect scoring companies and lenders to build and calibrate models that account for BNPL loans’ unique characteristics.
In recent announcements, each of the three largest NCRCs—Equifax , Experian , and TransUnion —has described its plans to accept BNPL payment data. However, the NCRCs plans vary, and the Bureau is concerned that this inconsistent treatment will limit the potential benefits of furnished BNPL data to consumers and the credit reporting system.
One NCRC is implementing a BNPL business industry code but allowing BNPL lenders to furnish payment data in the format of their choice, with potential inconsistent downstream impacts on consumers’ credit reports and scores. The other NCRCs are planning to keep furnished BNPL data in “specialty” files that are separate from the “core” credit files used to generate traditional credit reports and may include other more traditional, point-of-sale installment loans. If BNPL data is maintained in these specialty files, these data may not be reflected in traditional credit reports and credit scores.
These shortcomings can be resolved through the standardized approach for furnishing BNPL data described above. The CFPB recognizes the unique challenges that come with furnishing BNPL data and encourages NCRCs to incorporate the feedback of BNPL lenders (to reduce operational risk) and the credit scoring companies (to ensure that the unique characteristics of BNPL data can be considered appropriately by scoring models).
We will monitor the progress of BNPL lenders, the NCRCs, and credit scoring companies as the BNPL market grows and BNPL lenders choose to furnish information about repayment. In the coming months, we will revisit this issue as part of a broader report on the industry stemming from our market monitoring order and responses to a public request for comments. If you have an issue with a consumer financial product or service, including consumer reporting and BNPL products, you can submit a complaint with the CFPB online or by calling (855) 411-CFPB (2372).