US regulators are cracking down on the “buy now, pay later” industry

The US Consumer Financial Protection Bureau (CFPB) has released a comprehensive report warning that the burgeoning “buy now, pay later” industry needs new regulations to address industry practices.

FPB Director Rohit Chopra said he directed staff to identify industry surveillance policies that need to be curtailed, including the collection of consumer purchase and demographic data for targeted advertising. Buy-now pay-later providers are also subject to regulatory reviews similar to credit card companies.

The proposals would mark the most sweeping rules for the sector, which has exploded in popularity by offering consumers ways to split purchases into smaller installments, often without charging interest. Instead, vendors make most of their money by charging merchants a fee each time a consumer uses the product at checkout.

Shares in Affirm Holdings, Block and PayPal Holdings fluctuated between gains and losses in New York as some analysts said investors expected more criticism.

“The report is less damaging than feared,” Dan Dolev, an analyst at Mizuho Securities, said in a note. While regulators “have clearly identified key risks, they are also praising BNPL, which is a positive sign.”

Mr Chopra said in a statement that some buy-now, pay-later firms “might welcome a CFPB audit to identify potentially problematic business practices before they cause widespread harm.”

He said the agency “invites these firms to identify themselves to us if they wish to be investigated. We are looking into our competent authorities to also conduct audits on a mandatory basis.”

The regulator also plans to establish rules to ensure providers comply with the protections Congress has set out for credit cards. And agency staff will suggest ways for upstarts to send their details to credit bureaus.

“Today is a big step forward for consumers and honest finance, and we are heartened by the CFPB’s conclusions following their review,” Affirm said in an emailed statement. “We will continue to work with all of our stakeholders as we advance our mission to provide honest financial products that improve lives.”

Some of the buy-now-pay-later companies have come under criticism for not being subject to the same regulatory oversight that is typically applied to lenders.

The Truth in Lending Act — the landmark law mandating comprehensive disclosures for unsecured consumer loans — only applies to loans that require five or more payments, meaning it doesn’t typically apply to buy-it-now and pay-after offers, which are limited to four payments.

“We also recognize that when products are intentionally or unintentionally structured to circumvent existing laws, it creates an unlevel playing field,” said Mr. Chopra.

“We want competition to be based on product quality, customer service and pricing, not regulatory arbitrage.” US regulators are cracking down on the “buy now, pay later” industry

Fry Electronics Team

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