News and Commentary

CFPB Issues Report on “Buy Now, Pay Later”

Updated: Oct 18


Have you encountered the “Buy Now, Pay Later” (BNPL) option offered by companies like Klarna or Affirm while shopping online or through a mobile app? BNPL is a type of on-the-spot financing that is growing increasingly popular among consumers. This option allows you to purchase something immediately by agreeing to split the cost of your purchases (typically between $50 to $1,000) into four interest-free or almost interest-free payments. Like most financing options, missed BNPL payments are subject to late fees.


The BNPL industry grew rapidly during the pandemic. The CFPB details in a report on BNPL that there was a near tenfold increase in users from 2019 to 2021. Usage of BNPL financing was also heavily concentrated in apparel and beauty in 2019, accounting for 80.1% of the items spent on. Now, BNPL has branched out to industries as disparate as travel, pet care, groceries, and gas, and the combined account of apparel and beauty only accounted for 58.6% of payment installments in 2021.


The marketing of the BNPL makes it appear to be a zero-risk credit option. However, the CFPB has identified several areas of risk of consumer harm, including:

  • Inconsistent consumer protections: There is a lack of protections standardized for BNPL products, which are standard elsewhere in the consumer financial marketplace. These include a lack of standardized cost-of-credit disclosures, minimal dispute resolution rights, a forced opt-in to autopay, and companies that assess multiple late fees on the same missed payment. This makes BNPL financing differ from traditional installment loans.

  • Data harvesting and monetization: The BNPL business models have shifted towards proprietary app usage, allowing companies to build a valuable digital profile of each users' shopping behavior. The practice of harvesting and monetizing threatens consumers’ privacy, security, and autonomy. Ultimately, it may lead to a consolidation of market power for the firms with the largest volume of consumer data, which would reduce price competition, choice, and long-term innovation.

  • Debt accumulation and overextension: BNPL is designed to encourage consumers to purchase more and borrow more. This means shoppers can easily take out several installments within a short time frame at multiple BNPL companies, and users' BNPL debts can affect other debts. Currently, BNPL companies do not furnish data to the major credit reporting companies. That means that both BNPL companies and other lenders are unaware of the borrower’s current liabilities when making a decision to originate new loans.

Like other providers of credit, BNPL providers are subject to some federal and state oversight. The CFPB is looking to identify potential interpretive guidance or rules to issue with the goal of ensuring that BNPL lenders adhere to many of the baseline protections that Congress has already established for credit cards. The agency will also identify data surveillance practices that BNPL lenders should seek to avoid. It is expected that the CFPB will try to further supervise non-depository covered persons, such as BNPL, because the business model relies on data collection and loans serve as close substitute for credit cards.


Consumers having an issue with a BNPL product or service, or any other consumer financial product or service can submit a complaint with the CFPB online or by calling  (855) 411-CFPB (2372).


What are your thoughts on BNPL? Join the conversation by contacting Firstline at (831) 325-3369 or info@firstlinecompliance.com.