Push for Stronger Oversight

As buy now, pay later (BNPL) services gain traction, Democratic officials are advocating for enhanced scrutiny to fill potential regulatory gaps left by the Consumer Financial Protection Bureau (CFPB).

In an effort to gather more information on these lending practices, seven Democratic senators have addressed major BNPL providers. They requested detailed data and urged companies to report relevant information to credit agencies.

Concurrently, seven Democratic state attorneys general also sought explanations from BNPL firms regarding their methods for assessing a consumer’s repayment capacity, along with specifics about billing, late fees, and dispute handling procedures.

The primary concern is that consumers taking out BNPL loans might already be overburdened financially when they access additional credit. One letter to Klarna highlighted data showing BNPL users on average carried $871 more in credit card debt during the origination month compared to similar non-BNPL users.

Seeking Greater Transparency

Bidens administration proposed applying the Truth in Lending Act to BNPL companies, aligning them with disclosure requirements for credit card issuers. Although this rule was rescinded by the Trump administration earlier this year, some BNPL providers like Affirm have already started providing data to credit bureaus.

An Affirm and Experian joint study indicated that the impact of BNPL on credit scores is generally negligible, with positive effects more common.

“Sharing necessary data could win favor from regulators,” said Ben Danner, a Senior Credit and Commercial Analyst at Javelin Strategy & Research. “However, interpretations may vary based on initial assumptions about BNPL’s impacts.”

Growing Popularity

Despite regulatory concerns, BNPL is becoming increasingly popular among U.S. consumers. Half of the population has used such plans, with approximately a quarter holding three or more concurrently.

The recent Black Friday weekend saw 38% of shoppers using BNPL services, predominantly younger and lower-income individuals.