Buy Now, Pay More Later? Investigating Risks and Benefits of BNPL and Other... (EventID=114211)

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Connect with the House Financial Services Committee Get the latest news: https://financialservices.house.gov/ Follow us on Facebook: https://www.facebook.com/HouseFinancialCmte Follow us on Twitter: https://twitter.com/FSCDems ___________________________________ On Tuesday, November 2, 2021, at 10:00 a.m. (ET) Task Force on Financial Technology Chairman Lynch and Ranking Member Davidson will host a virtual hearing entitled, “Buy Now, Pay More Later? Investigating Risks and Benefits of BNPL and Other Emerging Fintech Cash Flow Products." - - - - - - - - Witnesses for this one-panel hearing will be: • Dr. Kristen Broady, Fellow in the Brookings Metropolitan Policy Program, Brookings Institution • Penny Lee, CEO, Financial Technology Association • Lauren Saunders, Associate Director, National Consumer Law Center • Marisabel Torres, Director of California Policy, Center for Responsible Lending • Brian Tate, CEO and President, Innovative Payments Association Overview In the last few years, several consumer loan products offered by technology-focused, nonbank financial institutions (fintechs) have attracted attention for both their rapid growth and popularity, as well as potential consumer protection concerns. Some of these products have been designed to help individuals manage their personal cash flow, often at a lower cost and with greater flexibility relative to traditional financial products and services. Many of these consumer products and services, in particular Buy Now, Pay Later (BNPL), earned wage access (EWA), and overdraft avoidance products, have dramatically grown their customer base. While these products may offer consumers new ways to purchase goods and services, consumer advocates have raised concerns over whether these products have the potential to create unsustainable levels of debt. Lending disclosure requirements, such as the Truth in Lending Act (TILA), may not apply to a number of these products, which raises questions about consumers’ understanding of the risks. As many of these products do not report payments to the credit bureaus, questions have also been raised over whether consumers miss out on opportunities to build credit. Buy Now, Pay Later “Buy Now, Pay Later” or BNPL, is a point of sale financing product that allows a consumer to purchase and take possession of an item immediately and pay for it over a certain period of time or with a specified number of payments. BNPL products may target thin credit file individuals who may not qualify for traditional credit cards. Accordingly, younger consumers may be more likely to use BNPL. Generally, BNPL allows borrowers to spread the cost of a purchase over a fixed number of payments or period of time, usually without accruing interest.The market for BNPL has grown rapidly in recent years, with one report suggesting that BNPL use has increased 230% since early 2020. Among the more popular products are those that allow four installment payments in two-week intervals; or payment at regular intervals over a six-week period. Klarna, Afterpay, Affirm, Splitit and Sezzle are among the companies offering BNPLproducts. Some of these companies have high market values, despite often being loss-generating operations. Klarna, a pioneer in the BNPL industry, after its latest round of equity funding, has been estimated to be valued at over $45 billion. Square recently announced plans to acquire Afterpay at a value of $29 billion. Such valuations may reflect expected revenue from sources indirectly related to the companies’ BNPL business, such as access to customer data and spending patterns and the ability to potentially cross-sell traditional banking services. Consumers may use BNPL payment products directly through a merchant, with some BNPL companies establishing relationships with specific merchants that embed the BNPL financing as a payment option in the merchant’s check-out process. Alternatively, some BNPL companies may allow customers to use the company’s platform in the form of a browser extension to purchase from retailers. Applications for financing take place at check out, and companies determine financing terms based on a soft credit check and a consumer’s tenure and performance on the platform. BNPL companies may charge a late fee if customers do not make a payment after a grace period, and nonpayment may curtail future opportunities. Unlike credit card companies, BNPL companies typically do not report repayment to credit reporting agencies, but some may report delinquencies to credit reporting agencies. BNPL companies generate most of their revenue by charging merchants for the service. Merchants are willing to pay these fees because they are motivated by new customer acquisition. While some companies that offer BNPL products operate independently, others work with banks to originate a majority of their loans. In such instances... Hearing page: https://financialservices.house.gov/calendar/eventsingle.aspx?EventID=408594