Not all buy now/pay later loan users show signs of financial stress. But consumers who routinely use these services are much more likely to also rely on high-interest financing tools including payday and pawn loans, according to a new Consumer Financial Protection Bureau
The report suggests BNPL borrowers are significantly more likely than nonusers to be highly indebted, to incur delinquencies and revolving credit card balances, use high-interest financing vehicles and overdraw their bank accounts, the CFPB said in a press release Thursday.
"A common misconception of buy now/pay later borrowers is that they lack access to other forms of credit. Our analysis shows that these borrowers are more likely to use other credit products," CFPB Director Rohit Chopra said in the release.
The report drew on a survey of consumer financial borrowing habits conducted last year using an anonymized sample of credit bureau records, the agency said.
About one-third of BNPL borrowers have outstanding personal loans, compared with 13% of nonusers, according to the report. Sixty-two percent of BNPL users also have a retail credit account, compared with 44% of non-BNPL users with a retail account. Thirty-three percent of BNPL users have student loans, compared with 17% of non-BNPL users who have student loans, the report said.
Women are more likely to use BNPL loans than men – 20% versus 14%. Black consumers are more likely to use BNPL loans, at 26%, compared with 24% of Hispanics and 16% of white consumers, according to the report. In addition, more than one in five renters used BNPL loans versus 15% of homeowners.
Along with risks to individual borrowers, the report highlighted BNPL loan concerns for lenders.
BNPL borrowers using multiple consumer finance products are more than twice as likely to be at least 30 days delinquent on a credit or retail card, a personal loan, auto loan, student loan or mortgage than non-BNPL users, according to the CFPB's report.
BNPL lenders aren't required to report borrowers' activity to credit bureaus, an area where experts believe the CFPB will eventually need to establish clearer rules.
"The CFPB has said it's concerned about consumers overextending themselves with so-called 'loan stacking,' where they're taking out multiple BNPL loans at the same time, and the lack of visibility into BNPL loan exposure via credit bureaus," said Steven Appelbaum, a partner at the law firm Saul Ewing.
BNPL borrowers also tend to have lower credit scores than nonusers, according to the CFPB's report, making them vulnerable to targeted BNPL marketing campaigns.
"Lower credit scores lead to higher interest rates on traditional credit products, which makes buy now/pay later loans with no interest an attractive alternative that many borrowers seek," the CFPB said in the press release.
Although the CFPB has not said whether it plans to issue BNPL rules, the agency appears to be moving in that direction, Appelbaum said. The CFPB published a
"Since buy now/pay later is like other forms of credit, we are working to ensure that borrowers have similar protections and that companies play by similar rules," Chopra said in the release.
