BNPL services are frequently at the point of sale when a purchaser is given the option for credit to pay over time. Usually, this is in the form of a term loan-like structure that is less costly to consumers than a credit card purchase which tends to have high rates and allows consumers to roll over balances while paying high fees.
Last year, Senate Democrats sent a letter to the Consumer Financial Protection Bureau (CFPB) urging Director Rohit Chopra to take action regarding BNPL services. Around the same time, the CFPB issued a series of orders to five BNPL companies in what was most likely a coordinated policy attack. The orders sought to collect information on the risks and benefits of these loan providers. The CFPG requested the information from Affirm, Afterpay, Klarna, PayPal, and Zip. The CFPB stated that it is concerned about “accumulating debt, regulatory arbitrage, and data harvesting in a consumer credit market already quickly changing with technology.”
In her editorial published on the American Banker, Lee countered criticism of BNPL providers. She said consumers are being provided with a choice that empowers individuals.
To quote the Op-ed:
“BNPL providers offer low-cost and flexible payment options, including direct payments, pay after delivery, and options to pay over time. The typical Pay-in-Four model that firms like Afterpay, Klarna, Zip, and Sezzle use allows consumers to pay for a purchase in four interest-free installments over six to eight weeks. BNPL providers primarily using this model make the vast majority of their revenue from their merchant partners. The results speak for themselves: approximately 95% of BNPL users don’t experience late charges. Many consumers use BNPL to manage their cash flow for small-dollar purchases, and most users had five times the total purchase amount in their account when using the BNPL payment option. Buy now/pay later is fundamentally different from revolving debt products like credit cards or payday loans. That’s because BNPL companies only succeed when people make their payments. If users are late, they are shut off from further use of the product and must resolve their payment plan. In contrast, credit cards and payday lenders benefit from consumers who are late or do not satisfy their payments. In fact, credit card providers make the majority of their revenue from interest charges and have been found to cost vulnerable customers up to 225% of the product purchase value in interest.”
Lee claims that BNPL providers offer a win-win for consumers who benefit from lower costs while merchants may see their businesses grow by providing affordable credit.
Regarding regulation, Lee states that calls to regulate BNPL firms are redundant as they already are – adhering to “lending and licensure” rules as enforced by the CFPB.
Lee called on regulators not to impede services that provide consumer choice while generating competition.
“We will continue to work closely with federal and state officials to help craft policies that allow consumers to continue using innovative payment options that help them achieve financial freedom and security.”