The OCC today issued guidance to address the risks associated with buy-now-pay-later lending.
The guidance focuses on the risk management of BNPL loans, which are payable in four or fewer installments and carry no finance charges. The guidance notes that banks should maintain underwriting, repayment terms, pricing and safeguards that minimize adverse customer outcomes and should ensure that marketing materials and disclosures are clear and conspicuous. “Prudent BNPL lending includes safeguards that minimize adverse customer outcomes,” the OCC said.
The OCC said it expects banks offering BNPL loans to do so in a “safe and sound manner” that provides “fair access to financial services, supports fair treatment of consumers and complies with applicable laws and regulations.” The rapidly growing availability of BNPL loans, the guidance says, poses risks to consumer credit reporting because the loans may not be fully captured in borrower credit histories. According to the OCC, existing credit scoring systems are not designed to capture the short-term nature and structure of BNPL loans, and incomplete reporting of BNPL loans could make it difficult for lenders to know the total dollar amount of debt that applicants have before determining whether to approve them for new credit.