CFPB study: BNPL loans grew tenfold since 2019

Buy-now-pay-later services have exploded in popularity with five BNPL lenders reporting a near tenfold increase in the number of loans issued since 2019, the Consumer Financial Protection Bureau said in a study released today. Late last year, the agency issued market monitoring orders to five lenders—Affirm, Afterpay, Klarna, PayPal and Zip. The firms reported offering 180 million loans totaling more than $24 billion in 2021, up from 16.8 million loans totaling $2 billion two years prior.

The CFPB study also found that 73% of applicants were approved for credit in 2021, up from 69% in 2020; that the average purchase financed by a BNPL loan rose from $120 to $135 during that same time frame; and that 10.5% of borrowers were charged at least one late fee in 2021. At the same time, 89% of loan repayments were made on a debit card last year, virtually unchanged from each of the previous two years.

CFPB also identified “several areas of risk of consumer harm,” such as “inconsistent consumer protections” and “data harvesting,” and said it will “identify potential interpretive guidance or rules to issue with the goal of ensuring that buy-now-pay-later lenders adhere to many of the baseline protections that Congress has already established for credit cards.” The agency said that as part of the review, it will subject BNPL lenders to “appropriate” supervisory examinations like those of credit card companies.

In a March letter to CFPB, ABA expressed concern about the rapid growth of BNPL products offered by nonbanks and noted that ABA members go to great lengths to comply with applicable consumer credit laws and provide fair and responsible access to credit. “To ensure consistent protections, it is imperative that that these basic protections and sound practices are afforded to all consumers by all BNPL providers,” the association said. “Nonbank BNPL providers should be monitored for aggressive origination and underwriting practices, inadequate disclosures, and unpredictable credit reporting practices. Promoting sound practices as they relate to these basic consumer protections would improve the efficiency and competitiveness of the BNPL market and the consumer credit market as a whole.”

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Walt Williams is Associate Editor of ABA Banking Journal.