70% of BNPL complaints are against a single supplier

As the Consumer Financial Protection Bureau (CFPB) continues its investigation into the buy now, pay later (BNPL) marketplace, we will soon know what consumers, small businesses, financial institutions, trade associations, investors and other interested parties have to say about the object. The open period for their comments ends on March 25.

This follows the CFPB’s request in December 2021 from five BNPL players – Affirm, Afterpay, Klarna, PayPal and Zip – to provide data to clarify the risks and benefits of this product for consumers.

Although public comment is not yet public, a few reports from consumer advocacy groups, small businesses and consumers have been released. Some of these reports show that the number of complaints against BNPL companies has increased over the past year, no doubt consistent with the sharp increase in the volume of BNPL transactions. It seems that many of these complaints reflect problems that companies should solve to improve their services rather than a market failure that regulation should correct.

For example, consumer advocacy group US PIRG released a report in March showing the number of complaints received by the top five downloaded BNPL apps, the type of complaints filed, and why the CFPB should act to protect consumers. According to the report, the data was extracted from the CFPB Consumer Complaint Database. PYMNTS was able to verify the number and type of complaints for most of these companies.

The first striking figure is that approximately 70% of complaints (430 out of 616) were filed against a single company. This could suggest that this company, rather than the entire industry, has a problem that needs to be addressed.

Looking at the data in more detail, we can also see that the top issues consumers complain about are “incorrect information in your report” and “attempts to collect debts not due”. According to this data, the majority of complaints are related to how companies handle consumer and merchant information and what they do with that data, rather than how BNPL’s business model works.

If this analysis holds true with a larger sample of complaints and the data provided by BNPL firms, the CFPB could focus on one of the three areas it investigates, namely regulatory arbitrage, to ensure that companies adhere to good consumer protection laws and provide adequate consumer protection. The Consumer Report does not raise significant issues with “debt accumulation” or “data harvesting,” the other two areas the CFPB is investigating.

Read more: The CFPB and the BNPL: 3 things to watch out for

The report concludes by recommending that the CFPB monitor consumer complaints, seek changes in the business model, and consider stronger regulation and enforcement, but does not specify what regulation might be needed.

The CFPB will assess all applications after March 25 and make a decision on what to do next. If the CFPB decides to take further action, according to the letter sent to BNPL firms in December, regulation is an option, but enforcement is also not out of the question. The CFPB’s new rules of procedure now provide for administrative procedures to ascertain whether there is a violation of the law.

See also: CFPB’s new rules of procedure could be a game-changer

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