U.S. regulators have indicated they plan to act to bring Buy Now, Pay Later (BNPL) lending practices closer in line with guidelines for credit cards.
The U.S. Consumer Financial Protection Bureau (CFPB) recently released a study on industry practices, based on information gathered from five leading lenders. CFPB Chairman Rohit Chopra indicated that BNPL borrowers should have protections similar to those offered to credit card borrowers.
The report noted that BNPL contracts lack standard cost-of-credit disclosures and offer minimal dispute resolution rights. Borrowing has generally been excluded from conventional credit reports, though credit monitoring bureaus have been making efforts to include them. As a result, borrowers can easily take out more loans than they can afford, and increase the likelihood that late fees and interest charges will be incurred.
In addition, many lenders harvest and monetize consumer data, threatening consumers’ privacy, security and autonomy, and allowing lenders to “grow revenue outside of their core lending business in ways that we do not see with other lending products” Chopra said. this allows firms to use “data to determine what products we see through paid product placement. This opens up the door to digital dark patterns and even the potential to price product based on our behaviour.”
In Canada, the Financial Consumer Agency of Canada published a report in 2021 that identified potential risks, but did not recommend regulations or regulatory oversight. It pledged continued monitoring and coordination with provincial oversight authorities.
FCAC consumer-facing information provides some basics about how the plans work, as well as pros (“you can purchase something you need and spread the payment over a period of time to fit your budget”) and cons (“it could encourage you to spend beyond your means and make impulsive purchases.” There is no mention about any of the data-harvesting concerns featured in the CFPB report.
The FCAC section on where to take complaints on BNPL transactions offers three potential courses of action. The first is to file a complaint with financial institutions. While many BNPL providers have alignments wth Canadian banks, not all do. The second is to contact provincial regulators if “your credit card provider is regulated provincially.” Few credit unions issue credit cards, and it is unlikely any that do so have agreements with BNPL providers. The third is to contact a provincial consumer protection office “for more information about what rules apply to retailers or to make a complaint.”
So, if a consumer used a BNPL provider independent of a federally or provincially regulated credit provider, their protections would depend on provincial rules related to the retailer, and not the credit provider. Almost every province has rules that require credit card issuers to reimburse consumers for properly cancelled contracts in which the purchaser did not receive cost recovery from the merchant, commonly known as “chargeback” provisions.