The rapid rise of the buy now/pay later sector drew congressional attention Tuesday, with lawmakers weighing the benefits and possible risks of the emerging payment method.
Democrats were relatively skeptical of BNPL lenders, whose short-term installment loans, typically offered through merchant websites, have grown in popularity during the pandemic. At a House hearing, they questioned whether the products put consumers at risk of falling behind on loan payments and urged regulators to examine the industry.
Rep. Maxine Waters, the California Democrat who chairs the House Financial Services Committee, said the Consumer Financial Protection Bureau should be “looking deeply” at BNPL lenders and getting a full understanding of their products.
Republicans were more keen on the nascent industry, warning against stifling products that some consumers view as offering a more flexible financing option than credit cards.
The hearing offered a preview of coming regulatory debates around buy now/pay later, the growth of which has
The hearing gives the CFPB “the political cover needed to advance regulations and bring enforcement actions in this space,” Jaret Seiberg, an analyst at Cowen Washington Research Group, wrote in a note to clients. The CFPB is likely to impose a requirement on BNPL lenders that would make them assess customers’ ability to repay a loan before borrowing, he wrote.
During the hearing, the BNPL industry was represented by Penny Lee, the CEO of the Financial Technology Association, which counts Afterpay and Klarna among its members.
While BNPL lenders are already subject to several federal and state regulations, policymakers should opt for “balanced and thoughtful regulation” that benefits consumers, she said.
BNPL lenders’ interest-free or low-interest products are more transparent than credit cards, Lee said, arguing that revolving credit lines can trap consumers in a “vicious cycle of debt” as their interest charges grow. Only 3% of BNPL customers have been charged late fees, she said.
In light of that data, Rep. Blaine Luetkemeyer, R-Missouri, said, “Let’s not overblow the problem here and throw the baby out with the bath water.”
“This is a very, very good way of allowing people to purchase products, pay for them in a timely manner as they can afford them,” he said.
Policymakers should understand any risks and benefits, but need to “avoid punishing new products” for not fitting into the existing regulatory framework, said Rep. Warren Davidson, R-Ohio. “The exponential growth of these alternative financial products clearly shows that consumers want them,” he said.
But consumer advocates who testified before the House committee’s Task Force on Financial Technology pressed regulators to take action.
A recent survey from Credit Karma
“While these products may appear straightforward, consumers and policymakers must ask themselves: What is the catch?” Torres said. “We need data to understand what they are, their prevalence and whether further protections are needed.”
House Democrats questioned why BNPL lenders do not report customers’ repayment history to credit bureaus, which could help borrowers improve their credit scores and allow some consumers to qualify for traditional credit. Democratic lawmakers asked whether legislation is needed to require the BNPL companies to make such reports.
But Lee of the Financial Technology Association said the industry is in active conversations with credit bureaus about how to share repayment data and the nuances involved. Those nuances include ensuring that credit bureaus do not ding customers for using BNPL products frequently if they are making consistent payments, she said.
“These are new products,” Lee said. “We want to ensure that the credit bureaus understand them properly.”
