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In Congressional Testimony, CRL Calls for Buy Now Pay Later and other Fintech Products to be Monitored and Regulated

Tuesday, November 2, 2021

WASHINGTON, D.C. – Center for Responsible Lending (CRL) Director of California Policy Marisabel Torres is currently testifying before the House Financial Services Committee’s Task Force on Financial Technology for a hearing titled “Buy Now, Pay More Later? Investigating Risks and Benefits of BNPL and Other Emerging Fintech Cash Flow Products.” Watch the hearing and to read text of both her oral and written testimonies.

In her written testimony, Ms. Torres states:

We are particularly concerned that without vigilant monitoring and appropriate regulation, products that promise to promote financial inclusion may exacerbate financial exclusion. This risk is especially high where fintechs rent a bank charter in an effort to evade state law.

Buy now, pay later may indeed be a preferred way for some to purchase goods. But there are clear concerns about the affordability of loans in this market. Earned wage access loans – those actually integrated with the employer and repaid only via deduction from future pay, without providing the lender access to the checking account – are far preferable to payday loans but still pose risks and should not be given a regulatory free pass to evolve outside of the regulation of credit. Faux earned wage access loans – where the lender repays itself from the borrower’s checking account – are, for all intents and purposes, payday loans and should be regulated as such. ‘Overdraft avoidance’ products also pose risks by accessing the borrower’s checking account and should be regulated as credit.

The testimony provides the following top-line recommendations:

  • Buy Now, Pay Later (BNPL):
    • CFPB [the Consumer Financial Protection Bureau] should use its market monitoring authority to collect, analyze, and publish data from the largest providers (anonymized) to better identify risks within the market.
    • CFPB should also issue a larger participant rule to define the market and then actively supervise large BNPL lenders to ensure, at a minimum, that they are not engaged in unfair, deceptive, or abusive acts or practices or unlawful discrimination.
    • CFPB should ultimately ensure that BNPL lenders make loans only after determining the borrower’s ability to repay, considering both income and expenses or obligations, and that these lenders are not charging unfair fees.
    • States should require BNPL lenders to obtain state licenses and consider collecting data to better illuminate the risks involved in these programs.
  • Earned Wage Access (EWA):
    • CFPB should repeal or significantly amend its actions concluding that certain EWAs are not credit (see October 2021 letter from the National Consumer Law Center (NCLC) and CRL); States should generally regulate EWA programs under their state credit laws.
  • Faux EWA and “overdraft avoidance” apps:
    • CFPB should supervise these lenders pursuant to its authority under Dodd-Frank to supervise payday lenders regardless of their size;
    • States should regulate these lenders under their state credit laws;
    • CFPB and states should affirm that “tips” on extensions of credit are evasive attempts to disguise interest charges;
    • CFPB and states should monitor use of “participation fees” to ensure they are not being used to evade regulation as credit.


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