US Regulator Puts BNPL Under the Microscope

By Glenn Dyer | More Articles by Glenn Dyer

Could this be the end of buy now, pay later as we know it?

The powerful Consumer Financial Protection Bureau (CFPB) has rattled the BNPL sector by opening an inquiry that could very well set new regulatory standards in the next year or so.

The news sent shares in BNPL companies falling in Australia on Friday, and Thursday in the US as the news came later in the US Thursday session.

Regulators in Australia and the UK have looked at BNPL and essentially given it a thumbs up, but American regulators seem more sceptical.

The inquiry in fact could see more delays in the proposed takeover of BNPL champion, Afterpay by the US company Block (nee Square).

The US financial regulators are much more powerful than it seems on the surface.

Because of the size of the US financial markets and the need for various companies in differing sectors to do business and be successful there, America’s rules, regulations and other standards influence regulation elsewhere.

In its statement, the Bureau signalled out this year’s Black Friday and Cyber Monday shopping periods which it said “saw massive growth in BNPL,” transactions.

The CFPB said it is particularly concerned about how BNPL impacts consumer debt accumulation, as well as what consumer protection laws apply and how the payment providers harvest data.

“Buy now, pay later is the new version of the old layaway plan, but with modern, faster twists where the consumer gets the product immediately but gets the debt immediately, too,” CFPB Director Rohit Chopra said in a statement.

“We have ordered Affirm, Afterpay, Klarna, PayPal and Zip to submit information so that we can report to the public about industry practices and risks.” The findings from this inquiry will be published later, the CFPB said.

The CFPB said instalment buying could encourage consumers to spend more than they can afford and juggling multiple payment plans can be harder to keep track of.

Further, the agency would like to better understand practices around data collection and what consumer protection laws should apply, it said. It is concerned that consumer data is being harvested and used in ways not approved of.

Afterpay shares fell another 6% in trading on Friday as investors await approval of the deal from the Bank of Spain.

Could the CFPB’s decision to hold an inquiry force a further delay on the Block takeover? Block shares fell a further 4.5% on Thursday to end at $US165.88. That pushed the value of the Afterpay deal down well under $A26 billion against the $A 39 billion when revealed in late July.


About Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

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