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CFPB begins crackdown on buy now, pay later lenders


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The U.S. Consumer Financial Protection Bureau plans to subject “buy now, pay later” lenders to the identical vigorous oversight as bank card corporations, saying the short-term financing industry harvests consumer data in ways in which threatens consumer privacy.

Considered an alternative choice to traditional bank cards, the buy now, pay later model allows consumers to repay a loan in a couple of installments, mostly 4 interest-free increments. The service, provided by a number of firms akin to Klarna and Afterpay, increased in popularity throughout the pandemic.

The patron watchdog, which does not currently regulate the industry, plans to issue guidance to oversee the lenders and subject them to supervisory exams, CFPB officials said.

“Buy Now, Pay Later firms are harvesting and leveraging data in ways we do not see with other corporations,” CFPB Director Rohit Chopra told reporters in a conference call Wednesday. “Through their proprietary interfaces, they’ll see which products we buy through product placement.”

The bureau also noted the rise in loan approval rates in a report released Thursday after an almost yearlong investigation. Apparel and sweetness merchants accounted for over 80% of usage in 2019 but only 58.6% in 2021 as more consumers used buy now, pay later for services akin to travel, pet care, groceries and gas.

More customers are also getting approved for the loans. In 2021, 73% of applicants were approved, compared with 69% in 2020, in line with the report.

The bureau outlined several risks to consumers who use buy now, pay later loans, including an absence of consumer protections compared with traditional bank card corporations, data harvesting and monetizing customer data, debt accumulation and “loan stacking” — or taking up quite a few loans at the identical time.

Late fees are also becoming more common. The CFPB found that 10.5% of unique users were charged a minimum of one late fee in 2021, compared with 7.8% in 2020. And adoption of the service is growing across all age groups, in line with Chopra.

The CFPB first announced its inquiry into the industry in December 2021.

The bureau can supervise a given buy now, pay later provider under certain circumstances, but licensing of the firms also vary state to state. Chopra has asked the CFPB to take a variety of steps toward mitigating dangers related to the industry, based on the report.

“We wish to make sure Buy Now, Pay Later firms are subjected to the suitable examination similar to regular bank card firms,” Chopra said.

The CFPB will determine how the bank card industry is incorporating buy now, pay later features. Staff can even discover customer surveillance procedures that will should be curtailed, he said.

Overall, the firms will likely be subject to appropriate supervisory examinations that align with regular bank card agencies, Chopra said, but proposed changes are ultimately the responsibility of individual firms.

“We would go away it to the businesses to find out what they think is the most effective recourse,” a CFPB official told reporters this week.

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