The US Consumer Financial Protection Bureau (CFPB) has launched an inquiry into the buy now, pay later market amid concerns about accumulating debt levels and data harvesting by vendors.
The watchdog has submitted a series of orders to Affirm, Afterpay, Klarna, PayPal, and Zip to hand over information about their business models and customers' shopping behaviour when using their products.
“Buy now, pay later is the new version of the old layaway plan, but with modern, faster twists where the consumer gets the product immediately but gets the debt immediately too,” says CFPB director Rohit Chopra. “We have ordered Affirm, Afterpay, Klarna, PayPal, and Zip to submit information so that we can report to the public about industry practices and risks.”
BNPL’s use has spiked during the Covid-19 pandemic and throughout the holiday shopping season. The most recent Black Friday and Cyber Monday shopping weekend saw explosive growth in BNPL, attracting the attentions of venture capitalists keen to throw money at a booming market.
During its inquiry, the CFPB will look into the debt levels accumulated by regular users of instalment payments, the use of regulatory arbitrage by firms to skirt consumer protection laws and the collation of personal payment histories to create closed loop shopping apps with partner merchants.
The Bureau says it would like to better understand practices around data collection, behavioral targeting, data monetisation and the risks they may create for consumers.
The US consumer watchdog says it is consulting with its counterparts in Australia, Sweden, Germany and the UK, where new laws are being drawn up to counter the more pernicious aspects of BNPL.