Press Release  AG Healey Calls on CFPB to Protect Consumers From Deceptive Buy-Now-Pay-Later Lenders

BOSTON — Attorney General Maura Healey joined a coalition of 20 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 state attorneys general.

In the comments submitted, 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 offering quick credit without full disclosures and consideration of the consumer’s ability to pay, 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.

“Buy-now-pay-later lenders can make promises that sound too good to be true, and often, they are, resulting in borrowers paying much more money in deals they can’t get out of,” AG Healey said. “I am joining my colleagues in calling on the CFPB to examine the practices utilized by this industry and ensure that consumers are not being preyed upon so that lenders can make an unfair profit.”

Consumers use BNPL loans when purchasing variety of goods and services, including clothing, household goods, event tickets, electronics, and 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 its letter, the coalition expresses concern that some BNPL lenders may be designing their loans to attempt 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 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 for-profit schools. 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.

AG Healey has previously raised concerns about BNPL lenders. In her office’s Consumer Advocacy Report, released in early March for National Consumer Protection Week, the AG’s Office reported hearing from consumers who were unaware that they were taking out a loan when offered a “Buy Now, Pay Later” arrangement, and were asked to pay more money than initially agreed to. The AG’s report offers guidance for consumers to consider before taking out a new loan including certain questions to ask:

• What is the interest of the loan?
• What is the length of the loan?
• What charges happen if you make a late or partial payment?
• What do you lose if you cannot pay the loan back?

Joining AG Healey in the comments, which were led by Illinois Attorney General Kwame Raoul, are the attorneys general of California, Colorado, Connecticut, Delaware, Hawaii, Iowa, Maine, Maryland, Michigan, 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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