‘Buy now, pay later’ firms under U.S. regulator’s scanner

BNPL services, which allow consumers to split purchase payments into instalments, exploded in popularity as Americans turned to online shopping during the COVID-19 pandemic

The U.S. Consumer Financial Protection Bureau (CFPB) plans to start regulating “buy-now, pay-later” (BNPL) companies like Klarna and Affirm Holdings due to worries their fast-growing financing products are harming consumers, the agency said on Thursday.

(Sign up to our Technology newsletter, Today’s Cache, for insights on emerging themes at the intersection of technology, business and policy. Click here to subscribe for free.)

The watchdog, which does not currently oversee BNPL companies or products, will issue guidance or a rule to align sector standards with those of credit card companies, it said. The agency also said it would implement appropriate supervisory examinations.

The development will be a blow for the sector, which is already under pressure due to rising funding costs and lower American consumer spending during soaring inflation.

It also marks a major offensive for CFPB director Rohit Chopra, who has pledged to scrutinise tech-driven companies as they increasingly encroach on the traditional financial sector.

"In the U.S., we have generally had a separation between banking and commerce, but as big tech-style business practices are adopted in the payments and financial services arena, that separation can go out the door," he told reporters.

BNPL services, which allow consumers to split purchase payments into instalments, exploded in popularity as Americans turned to online shopping during the coronavirus pandemic. Providers charge online retailers a fee for each transaction.