Buy Now, Pay Later Probe

This was was brought to us and transcribed by @NotAMouse (@Kickerboxer3 on these forums).

See below for what was communicated to me:


Buy Now, Pay Later Expected to Set New Records for Lending this Holiday Season

WASHINGTON, D.C. – Today the Consumer Financial Protection Bureau (CFPB) issued a series of orders to five companies offering “buy now, pay later” (BNPL) credit. The orders to collect information on the risks and benefits of these fast-growing loans went to Affirm, Afterpay, Klarna, PayPal, and Zip. The CFPB is concerned about accumulating debt, regulatory arbitrage, and data harvesting in a consumer credit market already quickly changing with technology.

“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,” said 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.”

Buy now, pay later credit is a type of deferred payment option that generally allows the consumer to split a purchase into smaller installments, typically four or less, often with a down payment of 25 percent due at checkout. The application process is quick, involving relatively little information from the consumer, and the product often comes with no interest. Lenders have touted BNPL as a safer alternative to credit card debt, along with its ability to serve consumers with scant or subprime credit histories.

Merchants are adopting BNPL programs and are willing to typically pay 3 percent to 6 percent of the purchase price to the companies, similar to credit card interchange fees, because consumers often buy more and spend more with BNPL. Indeed, BNPL’s use has spiked during the COVID-19 pandemic and throughout the holiday shopping season. More and more Americans are using it, and the most recent Black Friday and Cyber Monday shopping weekend saw massive growth in BNPL. This explosive growth has caught the eye of many investors, including significant venture capital money. Big tech companies are also entering the arena.

The law requires that the CFPB monitor consumer financial markets and enables the agency to require market players to submit information to inform this monitoring. The CFPB expects to publish aggregated findings on insights learned from this inquiry. Today’s orders seek to illuminate the range of these consumer credit products and their underlying business practices. Specifically, the Bureau is concerned about:

  • Accumulating debt : Whereas the old-style layaway installment loans were typically used for the occasional big purchase, people can quickly become regular users of BNPL for everyday discretionary buying, especially if they download the easy-to-use apps or install the web browser plugins. If a consumer has multiple purchases on multiple schedules with multiple companies, it may be hard to keep track of when payments are scheduled. And when there is not enough money in a consumer’s bank account, this can potentially result in charges by both the consumer’s bank and the BNPL provider. Because of the ease of getting these loans, consumers can end up spending more than anticipated.
  • Regulatory arbitrage : Some BNPL companies may not be adequately evaluating what consumer protection laws apply to their products. For example, some BNPL products do not provide certain disclosures, which could be required by some laws. And while the BNPL application may look similar to a standard checkout with a credit card, protections that apply to credit cards may not apply to BNPL products. Many BNPL companies do not provide dispute resolution protections available to users of other forms of credit, like credit cards. And finally, depending on what rules the lender is following, different late fees and policies apply.
  • Data harvesting : BNPL lenders have access to the valuable payment histories of their customers. Some have used this collected data to create closed loop shopping apps with partner merchants, pushing specific brands and products, often geared toward younger audiences. As competitive forces pressure the merchant discount, lenders will need to find other sources of revenue to maintain growth and profitability. The Bureau would like to better understand practices around data collection, behavioral targeting, data monetization and the risks they may create for consumers.

The BNPL product has seen growth internationally and many other countries are also taking a close examination of its providers. As part of today’s inquiry, the Bureau is working with its international partners in Australia, Sweden, Germany and the UK, specifically the Financial Conduct Authority. The Bureau will also be coordinating with the rest of the Federal Reserve System, as well as its state partners.

This probe affects companies like AFRM that provide “Buy Now, Pay Later” services. AFRM specifically is down 12.5% today. My off the cuff take is that this probe is frivolous and a rally will likely occur at some point.

This post is a wiki, so feel free to edit the OP and make it more substantial


Thanks for starting this - I edited your original post with the text of the full context of the internal release that I received (I am in a somewhat high-level role at a financial institution). I also added it to the existing AFRM thread that was out there. It will be an interesting watch.


are we mainly watching AFRM for this or is there a set of tickers that would be good to follow for this?


Based off of this I would look at KPLT, SQ, PYPL, AFTPF, Z1P. These are all either companies that also trade publically that are are in the same industry as the affected (SQ, KPLT are sympathy), or were directly contacted by the CFPB: PYPL, AFTPF, Z1P.

Klarna is private and not publicly traded, I believe.


As soon as I scanned the post by @NotAMouse I was inclined like Conq to think this was a not much of anything. Sure, it’s scary cos it’s from the CFPB, like the FTC, and have far-reaching powers. But let’s try to address the 3 issues they have and the fixes for them:

  1. Accumulating debt: the ease of getting these loans can make consumers end up spending more than anticipated. Credit cards, anyone? They give credit to university students like candy and most don’t have any steady income. What’s the big fucking deal?

  2. Regulatory arbitrage: don’t provide certain disclosures or allow for dispute resolution protection like credit cards. This is a contractual/regulatory issue that can be fixed by including it in the user agreement. Most of us don’t read these that come with credit cards anyway. For product specific warnings, this sounds like a software development patch that can identify these products and then flag them. Either way, it sounds like sour grapes from Visa and Mastercard that BYPL isn’t subject to the same regulations that they are.

  3. Data harvesting: this is the one that’s the biggest blow IMO. I’m sure BYPL offers their services to their merchant partners by upsellling closed loop or targeted marketing (not an expert opinion by any means). This value-added service can again be required through consentual user agreements. Either way, this is what search engines do when harvesting data and directing ads to paid partners. But if the workaround is not as simple and somehow they have to modify this upsell this does hurt the bottom line in revenue and becomes less attractive to potential partners.

Worst case this results in a hearing but most likely a meeting whereby BYPL and it’s partners will pay some well-suited lobbyists to compel a committee to see that BYPL is the future of credit. Most well-polished spokesperson will now make the rounds on all the major news channels and sway public opinion prior to this probe’s formal response to help everyone understand how misguided it is to protect consumers from BYPL and that the true predators are credit cards charging 20%.

And although a lot of alternative payment providers now offer BYPL, AFRM is a pure BYPL play and directly effected the most by this probe. This would be a long/LEAP play for me (not yet) but I took a loss on my most recent AFRM $125 12/17c that I thought I bought deep ITM when AFRM was trading at $130. Volatility with this ticker for sure.


From some quick reading on CFPB investigations, seems like the worst case scenario is paying damages to consumers - can’t see that happening here. Like others above I also think the data/consent to share information is what they’re after.

If you listen to any of the earnings calls, Max and team consistently drive home the point that they are safer and easier to work with than CC’s. They’re very sensitive to the topic of burdensome debt. Anecdotal, but I don’t see this becoming scandalous or unearthing shady lending practices.

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