Several weeks ago, we issued a market-monitoring inquiry into “buy now, pay later” (BNPL) products and business practices. Now we are inviting anyone interested in this market to submit comments -- including families, small businesses, and international regulators.
Use of BNPL has seen astronomical growth. Companies like Affirm, Afterpay, Klarna, PayPal, and Zip (formerly Quadpay) have become almost ubiquitous in the retail market since the pandemic. This past holiday season, usage spiked even higher, especially among young people. Some analysts have suggested that BNPL has rerouted big holiday shopping money away from the credit card companies towards these companies, putting an enormous amount of consumer debt on their books.
People encounter BNPL credit at the point of sale either online or at traditional retail stores. The loans are presented as a type of deferred payment option that generally allows someone to split a purchase into smaller installment payments, often with a down payment of 25 percent. The application process is quick, involving relatively little information from the buyer, and the buyer usually pays no interest.
For the buyer, it may seem like they are getting something for nothing. And it can be appealing because not only is it convenient but instead of an upfront cost of $100, they pay $25. But we are concerned there may be some systemic, underlying problems, particularly around accumulating debt, regulatory arbitrage, and data harvesting in a consumer credit market already quickly changing with technology. For some people, BNPL could look like a standard payment method when they are really taking on a new form of debt.
While BNPL has caught the eye of many investors, including big tech companies and significant venture capitalists, it has also caught the eye of fellow regulators around the world, including ones in Ireland, Germany, and the EU. Sweden already has a BNPL law that requires merchants to first present consumer options that do not contribute to debt. Last year, in the United Kingdom signaled plans for greater regulation. And in late October, the said that BNPL firms will no longer be able to bar merchants from passing on surcharges for their services.
In the U.S., Congress has tasked us with ensuring that markets for consumer financial products and services are fair, transparent, and competitive. To that end, it has authorized us to require participants in the marketplace to provide information that helps us monitor risks to consumers and to publish aggregated findings that are in the public interest. The orders issued on December 16 required five different buy now, pay later lenders to provide information on the risks and benefits of their products.
We are looking forward to the companies providing data. But to broaden the discussion even further, today we are inviting the public to comment on this market. We want to know:
- What is the buyer experience with BNPL?
- What are the benefits and risks?
- What is the merchant experience?
- What perspectives do regulators and attorneys general have with respect to BNPL products?
- Are there ways in which the BNPL market can be improved?
The feedback we receive will help us better understand how people interact with these providers, and how the providers’ business models impact the broader e-commerce and consumer credit marketplaces.
We encourage all interested parties to participate and submit comments through Federal Register.