The Consumer Financial Protection Bureau (CFPB) recently issued a new report regarding Buy Now, Pay Later (BNPL) products entitled, “Consumer Use of Buy Now, Pay Later: Insights from the CFPB Making Ends Meet Survey.” The report examines the consumer financial profiles of borrowers who use BNPL products by using the CFPB’s Making Ends Meet survey, which was taken from January-March 2022, and the Consumer Credit Panel. There were several key findings in the report: 

  • While many BNPL borrowers use the product without noticeable indications of financial distress, BNPL borrowers were, on average, more likely to be highly indebted, revolve on their credit cards, have delinquencies on traditional credit products (such as credit and retail cards, personal loans, auto loans and student loans), and use high-interest financial services such as payday, pawn, and overdraft compared to non-BNPL borrowers. 
  • BNPL borrowers have higher credit card utilization rates and lower credit scores.  
  • BNPL borrowers are more likely to have traditional credit products. In fact, they were more likely to borrow using credit and retail cards, personal loans, student debt, and auto loans compared to non-BNPL borrowers.  
  • BNPL is mostly used by consumers with substantial access to and use of other forms of credit. However, most of these credit sources would be much more expensive than BNPL for the typical user, so BNPL appears to be a less expensive borrowing option. 

The CFPB determined that between the first quarter of 2021 and the first quarter of 2022, seventeen percent of consumers borrowed using BNPL. Consumers of every age and income group, education level, race, ethnicity, and credit score used BNPL, but some groups were much more likely than others to borrow using BNPL. However, the CFPB indicated that there were significant limitations it its findings which it discusses in detail in its report, including that the identification of BNPL use is based solely on consumer self-reporting and reported for only one point in time. Further, the data in the report does not allow the CFPB “to distinguish the direction of causality – namely whether consumers in distress are more likely to use BNPL, for instance, in order to substitute away from high-interest loans that they already have, or whether BNPL use leads consumers to increase borrowing using other non-BNPL products.” Thus, the CFPB states that an important question for future research is “whether BNPL improves the financial health of consumers in distress or exacerbates these differences.” 

The last CFPB report on BNPL was in released in September 2022 and focused on the potential consumer risks associated with BNPL products including, discrete consumer harms, such as lack of clear disclosures of the loan terms, data harvesting, and overextension. The CFPB stated that it would take steps to address these risks and possibly issue rules to address them. However, the most recent BNPL later report indicates that perhaps BNPL could be beneficial to consumers’ financial health. To view the full CFPB report, please visit the BNPL report here.