Financial Protection

Problems with Buy Now, Pay Later schemes

Consumer alerts

The Consumer Financial Protection Bureau (CFPB)  has issued a major report outlining concerns on the growing use of Buy Now, Pay Later (BNPL) plans. In his prepared remarks, CFPB director Rohit Chopra said “In many ways, Buy Now, Pay Later is a blast from the past, but, importantly, it is supercharged for the era of e-commerce, digital surveillance, and gamification.”

BNPL Cover2

Hands holding phone with BNPL logoPhoto by B4LLS |

Blast from  the past? Its predecessor is the old department store layaway plans except under BNPL, you get the product immediately but pay for it later. A common model is “pay in 4,” where you make a 25% payment at checkout, then make 3 more payments, one every two weeks. A key part of the marketing is “no interest.” But, there are often late and other fees and you could lose track of payments to several lenders, where before you might have had only one monthly credit card bill or bank statement for your debit card purchases.

Digital surveillance? Companies selling BNPL are primarily “fintech” or “BigTech” entrants into the payments space although legacy financial firms are increasingly offering competing products. The BigTech business model is largely based on 24/7/365 consumer surveillance. From the report:

Similar to many other large tech platforms, BNPL lenders often collect consumer data—and deploy models, product features, and marketing campaigns based on that data—to increase the likelihood of incremental sales and maximize the lifetime value it can extract from each current, past, or potential borrower.

Gamification?: Fintechs are in the business of making shopping and spending more like a game, so you’ll spend more without thinking it will cost you anything.

The report is based on a CFPB “market monitoring” inquiry into 5 BNPL lenders, bolstered by a request for information from the public. Our joint PIRG/Center for Digital Democracy comment focused on consumer data harvesting and monetization. It is cited in the CFPB report (page 59):

“The BNPL model combines consumer surveillance, AI-driven data analytics, personalization, deep integration across platforms, retailers and applications, and real-time effects.” [PIRG/CDD] also offered an assessment of the consumer impact of the data-driven ecosystem that BNPL lenders have fostered: “We believe it will create an unfair and potentially costly environment for consumers, who are being lured—as BNPL companies openly claim—into spending more money at greater frequency.”

Our comments also discussed the general consumer protection concerns the report identifies — basically, that BNPL should not be allowed to continue to skirt consumer protection laws.  We support director Chopra’s recommendation that staff work toward “the goal of ensuring that Buy Now, Pay Later firms adhere to many of the baseline protections that Congress has already established for credit cards.”

But the big takeaway here is that the CFPB, a 21st century regulator, totally gets the threats that the BigTech data surveillance business model pose. As PIRG’s own 2022 report “The Hidden Costs of Buy Now, Pay Later” concluded:

Finally, we maintain our concerns that the vast data collection and monetization engines run by Big Tech firms are designed to fuel an explosion of buying and an increase in consumer debt for stuff we don’t need and can’t afford and, too often, end up throwing away.

We’ll post more on this  important report’s other findings, including its discussion of other consumer harms. Here are PIRG’s “Consumer Tips to avoid BNPL Pitfalls.

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