Banking advocates have told regulators that buy-it-now, pay-later options can create a debt trap for consumers. (iStock)

The Consumer Financial Protection Bureau (CFPB) opened an investigation suppliers to buy now, pay later (BNPL) in December, and now bank advocates are warning of the potential debt trap this financial offering could create.

BNPL allows consumers to spread the cost of their purchases into smaller installments to be repaid over a period of weeks or months. BNPL providers such as Sezzle, Klarna and Afterpay partner with merchants and offer interest-free payments, but can charge late fees or other penalties if a buyer doesn’t pay on time.

“BNPL has taken the country by storm, but the ease and convenience offered by the product has also raised legitimate questions about whether users are receiving the high level of protection they deserve from under-regulated fintechs. , which control the majority of the market, but do not follow the same federal oversight as major U.S. banks,” the Consumer Bankers Association (CBA) said in a March 22 statement.

As part of its investigation, the CFPB sent orders to Affirm, Afterpay, Klarna, PayPal and Zip to collect information on BNPL’s risks and benefits. The CFPB said at the time that it was concerned about debt accumulation, product regulation and data collection.

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BNPL could increase the debt burden

The ABC explained that unlike traditional banks, fintech companies are not regulated to ensure that they check a consumer’s credit history or ability to repay during the approval process. The CFPB’s investigation into the BNPL could eventually lead to increased regulation of the BNPL.

“Unaffordable credit can provide a quick influx of cash, but over the longer term – which in BNPL’s case might just be a few weeks or months down the road – unregulated fintech products can add to the burden debt from already debt-burdened consumers,” said Mike Calhoun, president of the Center for Responsible Lending (CRL). “Now is the time for regulators to rein in the BNPL.

BNPL use is on the rise, growing about 300% every year since 2018, according to Bloomberg. And the traditionally online financing option has also begun to expand to brick-and-mortar retailers through mobile payment options. Klarna recently announced a multi-year partnership with Brookfield Properties, a global real estate developer and operator, to bring its payments to Brookfield’s portfolio of more than 150 shopping centers in the United States.

If you are struggling to repay your debts following several BNPL transactions, a debt consolidation loan could help you. Visit Credible to compare multiple personal lenders at once and choose the one with the best interest rate for you.


CFPB should focus on regulating 3 categories, bank advocates say

The ABC has asked the CFPB to consider some recommendations to help ensure consumer safety when using BNPL services. He said reviewing BNPL’s suppliers is the first step towards establishing a level regulatory playing field.


Lenders assess a borrower’s creditworthiness by checking their credit history to see if they have a good enough credit profile to obtain the loan they are applying for. Lenders will check how much debt a borrower has, their credit rating, if they are paying their debts on time and more.

“Ensuring that non-bank fintech providers apply proper credit analysis will help strengthen consumers’ financial health and mitigate their potential for accumulating unwanted and unsustainable debt,” the ABC said.


The ABC has advocated for a standardized and simple disclosure statement to ensure that consumers are sufficiently informed about the products they use. This could help consumers better understand late fees and other penalties if they fail to make payments on time.

Data protection

Protecting data and personal information online is a growing concern as cybersecurity threats become more common. The ABC wants the CFPB to review and enforce fintech data privacy laws to ensure the privacy of sensitive information.

If you have used BNPL products and are unable to meet the payments, a personal loan could help you pay off your debt. Contact Credible to speak with a loan expert and see if this is the right option for you.

Do you have a financial question, but you don’t know who to contact? Email the Credible Money Expert at [email protected] and your question might be answered by Credible in our Money Expert column.

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