US government plans to regulate ‘buy now pay later’ loan companies

‘Buy now pay Later’ loan companies

As per recent reports, the US Consumer Financial Protection Bureau (CFPB) is planning to regulate “but now, pay later” companies. There has been a rapid growth of financial products companies such as Klarna and Affirm Holdings and CFPB does believe that this may harm consumers. CFPB is planning to roll out plans to regulate these companies.

Currently, they are overseeing buy now pay later companies or any of their products. Now they will also have guidelines or regulations which would be consistent with those of credit card companies. It is learned that they will implement appropriate oversight and inspection mechanisms. This move will be a kind of blow to the entire industry. These businesses had already come under pressure from the higher financing costs and lower spending by the US consumer. The lower spending is obviously due to the rising inflation. This also marks a major offensive by CFPB director Rohit Chopra.

He had previously pledged to scrutinize these tech-driven companies. There has been increasing encroachment on the traditional financial industry. Banking and commerce in the US are segregated. With the buy now, pay later service, the consumer was able to pay in installments for consumption. These services have been popularised and have been increasingly used by US consumers as they have used heavily e-commerce during the pandemic. Merchants have to pay the provider a fee each time when the consumer completes a transaction through this service.

An investigation carried out by CFPB found that “buy now, pay later” providers Affirm Holdings, Block’s Afterpay, Klarana, Australia Zip, and PayPal had made 180 million consumer loans in the year 2021 totaling a total value of $24.2 billion. The CFPB also makes the claim in the report that they are concerned that these products might pose risks to consumers. They also highlight the lack of standardized information disclosure mechanisms among the five companies. These companies can also lure the consumer to overspend.

These companies do not provide any sort of data to credit reporting agencies and lenders might not have a full picture of borrowers’ debt. We have to wait and watch for further regulations for a clearer picture.

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