Buy Now, Pay Later: Difference between revisions

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===No safeguards===

Credit card companies are legally obligated to report to the major credit bureaus such as Experian, TransUnion, and Equifax. Without reporting consumer information, BNPL lenders avoid common safeguards like spending limits, thus allowing consumers to accrue hundreds or even thousands of dollars in debt that otherwise wouldn't have been possible. This is particularly harmful because consumers tend to believe, and the lenders tend to advertise, that BNPL services are a safer option compared to traditional credit cards.

=== Data Harvesting ===

"BNPL lenders have access to the valuable payment histories of their customers. Some have used this collected data to create closed loop shopping apps with partner merchants, pushing specific brands and products, often geared toward younger audiences. As competitive forces pressure the merchant discount, lenders will need to find other sources of revenue to maintain growth and profitability. The Bureau would like to better understand practices around data collection, behavioral targeting, data monetization and the risks they may create for consumers"<ref name=":1" />.

==Regulations==

The prevalence of Buy Now, Pay Later loans has been most notable since the COVID pandemic in 2020, a time where people had done a lot of shopping online at home~~{{Citation needed}}~~. Because of this recent time-frame, legislation has been slow to mitigate the widespread effects. Most countries simply tacked BNPL services onto pre-existing banking laws, but this has left many gaps in how the service is regulated.

The prevalence of Buy Now, Pay Later loans has been most notable since the COVID pandemic in 2020, a time where people had done a lot of shopping online at home<ref name=":1" />. Because of this recent time-frame, legislation has been slow to mitigate the widespread effects. Most countries simply tacked BNPL services onto pre-existing banking laws<ref name=":2">{{Cite web |last=Pearson |first=Daniel B. |date=6 Jun 2025 |title=New York Enacts First-of-Its-Kind Law to License Buy-Now-Pay-Later Lenders |url=https://www.mayerbrown.com/en/insights/publications/2025/06/new-york-enacts-first-of-its-kind-law-to-license-buy-now-pay-later-lenders}}</ref>{{Citation needed}}, but this has left many gaps in how the service is regulated.

===United States===

The Consumer Financial Protection Bureau (CFPB) is a government agency designed for consumer protection from financial institutions. The agency first opened an inquiry into BNPL lenders in 2021, and it issued orders to collect information from Affirm, Afterpay, Klarna, [[PayPal]], and Zip due to concerns of "accumulating debt, regulatory arbitrage, and data harvesting in a consumer credit market already quickly changing with technology"<ref>{{Cite web |date=16 Dec 2021 |title=Consumer Financial Protection Bureau Opens Inquiry into “Buy Now, Pay Later” Credit |url=https://www.consumerfinance.gov/about-us/newsroom/consumer-financial-protection-bureau-opens-inquiry-into-buy-now-pay-later-credit/ |website=Consumer Financial Protection Bureau}}</ref>. In May of 2024, the agency issued an interpretative rule stating that Buy Now, Pay Later lenders are, in fact, credit card providers and are therefore subjected to the same federal regulations and consumer protections, particularly the Truth in Lending Act (TILA)<ref>{{Cite web |date=22 May 2024 |title=CFPB Takes Action to Ensure Consumers Can Dispute Charges and Obtain Refunds on Buy Now, Pay Later Loans |url=https://www.consumerfinance.gov/about-us/newsroom/cfpb-takes-action-to-ensure-consumers-can-dispute-charges-and-obtain-refunds-on-buy-now-pay-later-loans/ |website=Consumer Financial Protection Bureau}}</ref>.

The Consumer Financial Protection Bureau (CFPB) is a government agency designed for consumer protection from financial institutions. The agency first opened an inquiry into BNPL lenders in 2021, and it issued orders to collect information from Affirm, Afterpay, Klarna, PayPal, and Zip due to concerns of "accumulating debt, regulatory arbitrage, and data harvesting in a consumer credit market already quickly changing with technology"<ref name=":1">{{Cite web |date=16 Dec 2021 |title=Consumer Financial Protection Bureau Opens Inquiry into “Buy Now, Pay Later” Credit |url=https://www.consumerfinance.gov/about-us/newsroom/consumer-financial-protection-bureau-opens-inquiry-into-buy-now-pay-later-credit/ |website=Consumer Financial Protection Bureau}}</ref>. In May of 2024, the agency issued an interpretative rule stating that Buy Now, Pay Later lenders are, in fact, credit card providers and are therefore subjected to the same federal regulations and consumer protections, particularly the Truth in Lending Act (TILA)<ref>{{Cite web |date=22 May 2024 |title=CFPB Takes Action to Ensure Consumers Can Dispute Charges and Obtain Refunds on Buy Now, Pay Later Loans |url=https://www.consumerfinance.gov/about-us/newsroom/cfpb-takes-action-to-ensure-consumers-can-dispute-charges-and-obtain-refunds-on-buy-now-pay-later-loans/ |website=Consumer Financial Protection Bureau}}</ref>.

However, in March of 2025, the bureau rescinded their interpretative rule after the Financial Technology Association (FTA), a lobbying organization for fintech companies, filed a complaint against the bureau for its interpretative rule, as well as after the bureau itself fell under new leadership within the Trump administration<ref name=":0">{{Cite web |last=Mitzenmacher |first=Eric T. |date=29 Mar 2025 |title=CFPB Indicates That It Will Rescind Buy Now, Pay Later Interpretative Rule |url=https://www.cfsreview.com/2025/03/cfpb-indicates-that-it-will-rescind-buy-now-pay-later-interpretative-rule/ |website=Mayer Brown - Consumer Financial Services Review}}</ref>. The FTA's complaint was filed less than six months after the bureau's interpretive rule<ref name=":0" /><ref>{{Cite web |date=Oct 2024 |title=Financial Technology Association v. Consumer Financial Protection Bureau |url=https://www.ftassociation.org/wp-content/uploads/2024/10/FTA-Complaint-File.pdf}}</ref>, and in the complaint, the FTA alleges that the bureau did not follow correct protocol, contradicted the Truth in Lending Act, and argued that credit card regulation was "a poor fit for BNPL products"<ref name=":0" />.

===New York's ''Buy Now, Pay Later'' ~~Act~~===

===New York's ''Buy-Now-Pay-Later'' Act===

On May 9, 2025, New York included in their budget legislation (Senate Bill 3008) the ''Buy-Now-Pay-Later Act'' (Article 14-B) to regulate BNPL lenders by requiring state licensure and other regulations<ref name=":2" /><ref>{{Cite web |last=Cover |first=Jason |date=29 May 2025 |title=Understanding New York’s New Buy-Now-Pay-Later Law |url=https://www.consumerfinancialserviceslawmonitor.com/2025/05/understanding-new-yorks-new-buy-now-pay-later-law/ |website=Consumer Financial Services - Law Monitor}}</ref><ref>{{Cite web |date=Jan 2025 |title=Senate Bill S3008C |url=https://www.nysenate.gov/legislation/bills/2025/S3008/amendment/C |website=The New York State Senate}}</ref>.

One major criticism of this bill is that it only affects banks within the state of New York, while national and foreign entities are not required to follow the guideline{{Citation needed}}.

==~~Examples~~==

==Buy-Now-Pay-Later Lenders==

*[https://www.affirm.com/ '''Affirm''']

*[https://www.afterpay.com/ '''Afterpay''']

@@ Line 16: / Line 16: @@
 ===No safeguards===
 Credit card companies are legally obligated to report to the major credit bureaus such as Experian, TransUnion, and Equifax. Without reporting consumer information, BNPL lenders avoid common safeguards like spending limits, thus allowing consumers to accrue hundreds or even thousands of dollars in debt that otherwise wouldn't have been possible. This is particularly harmful because consumers tend to believe, and the lenders tend to advertise, that BNPL services are a safer option compared to traditional credit cards.
+=== Data Harvesting ===
+"BNPL lenders have access to the valuable payment histories of their customers. Some have used this collected data to create closed loop shopping apps with partner merchants, pushing specific brands and products, often geared toward younger audiences. As competitive forces pressure the merchant discount, lenders will need to find other sources of revenue to maintain growth and profitability. The Bureau would like to better understand practices around data collection, behavioral targeting, data monetization and the risks they may create for consumers"<ref name=":1" />.<!-- This is a direct quote from the CFPB page cited. Still needs to be re-worded/paraphrased and fit within wiki's voice -->
 ==Regulations==
-The prevalence of Buy Now, Pay Later loans has been most notable since the COVID pandemic in 2020, a time where people had done a lot of shopping online at home{{Citation needed}}. Because of this recent time-frame, legislation has been slow to mitigate the widespread effects. Most countries simply tacked BNPL services onto pre-existing banking laws, but this has left many gaps in how the service is regulated.
+The prevalence of Buy Now, Pay Later loans has been most notable since the COVID pandemic in 2020, a time where people had done a lot of shopping online at home<ref name=":1" />. Because of this recent time-frame, legislation has been slow to mitigate the widespread effects. Most countries simply tacked BNPL services onto pre-existing banking laws<ref name=":2">{{Cite web |last=Pearson |first=Daniel B. |date=6 Jun 2025 |title=New York Enacts First-of-Its-Kind Law to License Buy-Now-Pay-Later Lenders |url=https://www.mayerbrown.com/en/insights/publications/2025/06/new-york-enacts-first-of-its-kind-law-to-license-buy-now-pay-later-lenders}}</ref>{{Citation needed}}, but this has left many gaps in how the service is regulated.
 ===United States===
-The Consumer Financial Protection Bureau (CFPB) is a government agency designed for consumer protection from financial institutions. The agency first opened an inquiry into BNPL lenders in 2021, and it issued orders to collect information from Affirm, Afterpay, Klarna, [[PayPal]], and Zip due to concerns of "accumulating debt, regulatory arbitrage, and data harvesting in a consumer credit market already quickly changing with technology"<ref>{{Cite web |date=16 Dec 2021 |title=Consumer Financial Protection Bureau Opens Inquiry into “Buy Now, Pay Later” Credit |url=https://www.consumerfinance.gov/about-us/newsroom/consumer-financial-protection-bureau-opens-inquiry-into-buy-now-pay-later-credit/ |website=Consumer Financial Protection Bureau}}</ref>. In May of 2024, the agency issued an interpretative rule stating that Buy Now, Pay Later lenders are, in fact, credit card providers and are therefore subjected to the same federal regulations and consumer protections, particularly the Truth in Lending Act (TILA)<ref>{{Cite web |date=22 May 2024 |title=CFPB Takes Action to Ensure Consumers Can Dispute Charges and Obtain Refunds on Buy Now, Pay Later Loans |url=https://www.consumerfinance.gov/about-us/newsroom/cfpb-takes-action-to-ensure-consumers-can-dispute-charges-and-obtain-refunds-on-buy-now-pay-later-loans/ |website=Consumer Financial Protection Bureau}}</ref>.
+The Consumer Financial Protection Bureau (CFPB) is a government agency designed for consumer protection from financial institutions. The agency first opened an inquiry into BNPL lenders in 2021, and it issued orders to collect information from Affirm, Afterpay, Klarna, PayPal, and Zip due to concerns of "accumulating debt, regulatory arbitrage, and data harvesting in a consumer credit market already quickly changing with technology"<ref name=":1">{{Cite web |date=16 Dec 2021 |title=Consumer Financial Protection Bureau Opens Inquiry into “Buy Now, Pay Later” Credit |url=https://www.consumerfinance.gov/about-us/newsroom/consumer-financial-protection-bureau-opens-inquiry-into-buy-now-pay-later-credit/ |website=Consumer Financial Protection Bureau}}</ref>. In May of 2024, the agency issued an interpretative rule stating that Buy Now, Pay Later lenders are, in fact, credit card providers and are therefore subjected to the same federal regulations and consumer protections, particularly the Truth in Lending Act (TILA)<ref>{{Cite web |date=22 May 2024 |title=CFPB Takes Action to Ensure Consumers Can Dispute Charges and Obtain Refunds on Buy Now, Pay Later Loans |url=https://www.consumerfinance.gov/about-us/newsroom/cfpb-takes-action-to-ensure-consumers-can-dispute-charges-and-obtain-refunds-on-buy-now-pay-later-loans/ |website=Consumer Financial Protection Bureau}}</ref>.
 However, in March of 2025, the bureau rescinded their interpretative rule after the Financial Technology Association (FTA), a lobbying organization for fintech companies, filed a complaint against the bureau for its interpretative rule, as well as after the bureau itself fell under new leadership within the Trump administration<ref name=":0">{{Cite web |last=Mitzenmacher |first=Eric T. |date=29 Mar 2025 |title=CFPB Indicates That It Will Rescind Buy Now, Pay Later Interpretative Rule |url=https://www.cfsreview.com/2025/03/cfpb-indicates-that-it-will-rescind-buy-now-pay-later-interpretative-rule/ |website=Mayer Brown - Consumer Financial Services Review}}</ref>. The FTA's complaint was filed less than six months after the bureau's interpretive rule<ref name=":0" /><ref>{{Cite web |date=Oct 2024 |title=Financial Technology Association v. Consumer Financial Protection Bureau |url=https://www.ftassociation.org/wp-content/uploads/2024/10/FTA-Complaint-File.pdf}}</ref>, and in the complaint, the FTA alleges that the bureau did not follow correct protocol, contradicted the Truth in Lending Act, and argued that credit card regulation was "a poor fit for BNPL products"<ref name=":0" />.
-===New York's ''Buy Now, Pay Later'' Act===
+===New York's ''Buy-Now-Pay-Later'' Act===
+On May 9, 2025, New York included in their budget legislation (Senate Bill 3008) the ''Buy-Now-Pay-Later Act'' (Article 14-B) to regulate BNPL lenders by requiring state licensure and other regulations<ref name=":2" /><ref>{{Cite web |last=Cover |first=Jason |date=29 May 2025 |title=Understanding New York’s New Buy-Now-Pay-Later Law |url=https://www.consumerfinancialserviceslawmonitor.com/2025/05/understanding-new-yorks-new-buy-now-pay-later-law/ |website=Consumer Financial Services - Law Monitor}}</ref><ref>{{Cite web |date=Jan 2025 |title=Senate Bill S3008C |url=https://www.nysenate.gov/legislation/bills/2025/S3008/amendment/C |website=The New York State Senate}}</ref>.
+One major criticism of this bill is that it only affects banks within the state of New York, while national and foreign entities are not required to follow the guideline{{Citation needed}}.
-==Examples==
+==Buy-Now-Pay-Later Lenders==
 *[https://www.affirm.com/ '''Affirm''']
 *[https://www.afterpay.com/ '''Afterpay''']