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AG Nessel: Consumer Financial Protection Bureau Should Prioritize Protections During Review of Buy-Now-Pay-Later Lending Industry

LANSING - Michigan Attorney General Dana Nessel joined a coalition of 19 attorneys general in urging the Consumer Financial Protection Bureau (CFPB) to ensure that buy-now-pay-later (BNPL) lenders are not engaging in practices that trap consumers in a cycle of debt.  

BNPL loans are a form of point-of-sale financing that allow consumers to divide the cost of purchases into multiple installments. The CFPB launched an inquiry into BNPL lenders and practices in 2021 and directed BNPL lenders to provide data related to lending and financing services. As part of its inquiry, the CFPB is seeking input from attorneys general. 

In their comments, the attorneys general call on the CFPB to prioritize robust consumer protections during its review of the BNPL loan industry. The coalition is concerned that by touting quick credit application approvals and convenient, flexible payment schedules, BNPL loans and services are particularly appealing to borrowers already struggling with debt or younger borrowers who lack experience with credit. The attorneys general also point out that, similar to predatory lending products, BNPL loans may contain terms and features that are known to trap people in cycles of debt.  

"These kinds of loans may have the effect of pushing those already struggling financially into a quicksand of debt that only worsens their situation," Nessel said. "Protecting Michiganders is my top priority, so I'm happy to join the other states in urging the CFPB to put buy-now-pay-later lenders under greater scrutiny to protect consumers." 

People use BNPL loans when purchasing variety of goods and services, from clothing and household goods, to event tickets and electronics, to even online training courses. In recent years, the BNPL industry has experienced rapid and exponential growth, particularly during the COVID-19 pandemic as consumers have shopped online more frequently.  

In their letter, the coalition expresses concern that some BNPL lenders may be designing their loans to evade federal and state consumer protection and credit laws and may not adequately disclose lending and repayment terms. For instance, BNPL providers may not necessarily consider a borrower's ability to repay loans before approving applications. In addition, while some BNPL providers do not charge regular fees or interest, most charge late fees and report late or missed payments to credit bureaus. As a result, borrowers may accumulate more debt and end up paying more when utilizing BNPL loans. In addition, the coalition recommends that the CFPB examine the means through which BNPL companies protect consumer privacy and collect, use and monetize consumer data.  

The coalition also encourages the CFPB to look into apparent partnerships between BNPL companies and providers of unaccredited online courses. The attorneys general point to online courses, such as tech boot camps, that have established partnerships with non-bank lenders offering these new financial services. The coalition points out that such services do not offer participants the same protections as those included in federal student loans, or even private student loans. 

Joining Attorney General Nessel in the comments are the attorneys general of California, Colorado, Connecticut, Delaware, Hawaii, Illinois, Iowa, Maine, Maryland, Minnesota, Nevada, New Jersey, New York, North Carolina, Oregon, Pennsylvania, Vermont and Washington, as well as the Hawaii Office of Consumer Protection. 

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