The Consumer Federation of America (CFA) submitted a statement for the record to the U.S. House Committee on Financial Services Task Force on Financial Technology on “Buy Now, Pay More Later? Investigating Risks and Benefits of BNPL and Other Emerging Fintech Cash Flow Products.” New consumer credit products are expanding across market areas, including but not limited to Buy Now, Pay Later (BNPL) loans, Earned Wage Access (EWA) products, and cash advance and overdraft protection products that collect “tips.” Although innovation has an important role in the financial marketplace, it should be pursued in a way that is consistent with and enhances consumer protections. It should not shield innovators from enforcement and supervision nor limit the state and federal regulatory authority. Although some of these credit products could help consumers manage their finances, they are not risk free, as illustrated by consumer complaints to the Consumer Financial Protection Bureau and Better Business Bureau included throughout this statement. The products and fee models discussed during the hearing, although each unique, share similarities in how they operate and how they use “innovation” to claim that they do not fit within the existing regulatory framework. Regardless of their structure, each of these products are credit– they provide funding today and are repaid later. Given that, these products should be subject to the host of state and federal consumer protection laws that regulate credit products. At a minimum, they still need to be covered by basic consumer protections, including interest rate limits, underwriting for ability-to-repay, cost transparency, dispute rights, and fair lending laws. It is also important that they be examined for unfair, deceptive, or abusive practices independently of compliance with credit laws.
CFA’s statement addresses three types of emerging forms of credit: Buy Now, Pay Later loans; Earned Wage Access (EWA) programs; and faux Earned Wage Access, overdraft protection, and cash advance products that collect “tips.”