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Sept 15 (Reuters) – The US Consumer Financial Protection Bureau (CFPB) plans to begin regulating buy-now, pay-later (BNPL) companies such as Klarna and Affirm Holdings (AFRM.O), Products are hurting consumers as it worries about its fast-growing funding, the agency said on Thursday.

The regulator, which does not currently oversee BNPL companies or products, will issue guidance or a rule to align industry standards with those of credit card companies, it said. The agency also said it will conduct appropriate oversight reviews.

The move will come as a blow to the sector, which is already under pressure from rising financing costs and lower US consumer spending amid rising inflation. Continue reading

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It’s also a major offensive for CFPB director Rohit Chopra, who has pledged to scrutinize tech-focused companies as they increasingly invade the traditional financial sector.

“In the US, we’ve generally had a separation between banking and commerce, but as big tech-style business practices are being adopted in payments and financial services, that separation can go nowhere,” he told reporters.


BNPL services, which allow consumers to split purchase payments into installments, rose in popularity as Americans turned to online shopping during the coronavirus pandemic. Providers charge online merchants a fee for each transaction.

Following an investigation last year, the CFPB found that BNPL providers Affirm Holdings, Block’s (SQ.N) Afterpay, Klarna, PayPal (PYPL.O) and Australia’s Zip Co (ZIP.AX) will total 180 million loans, for a total of $24.2 billion, an annual increase of more than 200% since 2019. Read more

However, the CFPB said in its report it was concerned that their products could pose risks to consumers, highlighting the lack of standardized disclosures among the five surveyed companies and the potential for overburdening consumers.

Specifically, the CFPB said because BNPL providers don’t share data with credit reporting agencies, lenders could have an incomplete picture of a borrower’s liabilities, including BNPL loans at competing firms.

The agency also pointed to the collection of customer data as a consumer risk and said it will begin identifying data surveillance practices that BNPL companies should avoid.

In a statement, a spokesman for Affirm said its top priority is “to empower consumers by providing a safe, honest and responsible way to pay over time without late or hidden fees.”

“Today is a big step forward for consumers and honest finances, and we are heartened by the CFPB’s conclusions following their review,” the spokesman said, noting that the CFPB’s report recognized that BNPL offered consumers greater benefits compared to traditional ones Credit products imposed significantly lower costs.

A spokesman for Klarna said the company “is committed to the financial wellbeing and protection of consumers through industry innovation and proper regulation.”

“We are pleased that the CFPB has recognized the value BNPL offers to consumers, including access to credit, ease of use and lower costs, especially during tough economic times,” said a spokesperson for Zip.

Penny Lee, CEO of the Financial Technology Association, a trade group representing Afterpay, Klarna, PayPal and Zip, said in a statement that the report makes it clear that BNPL is a competitive alternative to high-yield lending products.

“We look forward to continuing to work with regulators like the CFPB to drive positive outcomes for consumers,” she said.

The CFPB was formed after the 2008 financial crisis to crack down on predatory lenders like mortgage lenders and payday lenders.

Although the agency has not traditionally overseen BNPL companies, Chopra told Reuters in July he believes he has the power to regulate companies’ activities if they resemble those of traditional financial services firms.

However, BNPL companies are likely to contest this claim.

Share prices of publicly traded “buy now, pay later” companies have been under pressure this year, with Affirm falling more than 75% and Zip 79%. Klarna’s rating plummeted by around 85% in July. Continue reading

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Reporting by Hannah Lang in Washington; Edited by Michelle Price, Josie Kao, Jonathan Oatis and Diane Craft

Our standards: The Thomson Reuters Trust Policy.




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