Research Needed for Impact of BNPL on Financial Health

the Consumer Financial Protection Bureau (CFPB) said there is a need for more research on buy now, pay later (BNPL) after learning that BNPL borrowers have higher balances on other lines of credit.

“The importance of BNPL to the credit profiles of BNPL borrowers highlights the need for additional research to understand how this growing financial product affects the financial health of borrowers,” the CFPB wrote in a report released Monday (Jan. 13).

The regulator’s report found that more than one-fifth of consumers with a credit report used BNPL loans by 2022, according to a Monday. press release.

It was also found that more than 60% of BNPL users have concurrent loans with BNPL, nearly two-thirds of BNPL loans went to consumers with subprime credit scores or lower, and BNPL borrowers have higher balances in other lines of credit such as personal loans, retail loans, student loans, credit cards and subprime alternative financial services lenders, per the release.

“Prior to the first-time use of BNPL, average consumer credit card usage rates increased, suggesting that less available credit card liquidity may encourage consumers to use BNPL,” the release said.

Director of the CFPB Rohit Chopra said in March that the agency plans to take a closer look BNPL providers because, he said, some use personal data to “induce additional purchases or borrowing” on the part of consumers.

In May, the CFPB ruled that BNPL vendors credit card providers and must provide some important legal protections and rights provided by conventional credit cards, including the consumer’s right to dispute charges and request a refund from the lender.

“Buy now, pay later is now a big part of the consumer credit market, because these loans provide a meaningful alternative to other options for consumers,” Chopra said at the time. “However, the CFPB wants to ensure that these new competitive offers do not gain an advantage by negating long-standing rights and responsibilities enshrined under the law.”

BNPL emerged as a change that could help restore the credit status of consumers who do not have a good understanding of how credit scores work or how to improve them to qualify for credit products, according to PYMNTS Intelligence and Sezzle collaboration,”How Credit Uncertainty Is Changing U.S. Consumer Lending Habits.”