CFPB’s BNPL Report Could be ‘Somewhat Negative’ for the Industry

By Sam Boughedda

On Thursday, the Consumer Financial Protection Bureau (CFPB) issued a report regarding the Buy Now, Pay Later (BNPL) industry, saying it intends to regulate BNPL companies such as Affirm Holdings Inc (NASDAQ:).

The CFPB said they have worries that rapidly-growing financing products are harming consumers. In the report, the agency highlighted concerns about the industry on issues such as a lack of standardized disclosure, dispute difficulty, overextension, forced autopay, lack of reporting to credit bureaus, and data collection.

Following the news, analysts at Credit Suisse, BofA, and Morgan Stanley released notes:

The Credit Suisse analyst said that the report “could be somewhat negative for the BNPL industry as it could add steps to the process, but it should not come as a surprise given the CFPB’s earlier writings on the industry.”

“That said, it appears the scope will be limited to only pay-in-4 short-term BNPL, and would not include POS installment loans with longer terms or post-purchase credit card installment plans. In our coverage, we continue to believe AFRM is positioned favorably from increasing regulations given the company has never charged consumers late fees, underwrites individual transactions, and that only 23% of its last quarter’s GMV is in pay-in-4 product (unlike most of the five BNPL companies surveyed),” added the analyst.

Meanwhile, a BofA Securities analyst said overall, they see the report as balanced.

“The agency is quick to acknowledge consumer benefits of BNPL, including low-cost alternative form of credit, increasingly ubiquitous merchant acceptance, ease of use, and straight-forward repayment structures. At the same time, the CFPB identified potential areas of risk from BNPL, including disclosures, dispute resolution, data harvesting, and potential for consumers to overextend their borrowing. From a stock perspective, we view the report as neutral to positive for Buy-rated AFRM,  and , as the CFPB does not seem to be pursuing overly onerous regulatory remedies,” explained the analyst.

Finally, a Morgan Stanley analyst wrote that the report affirms their long-term view.

“We have consistently said that fintech and payments players would eventually have to choose between being a payment/financial services provider or being a marketing engine. As such, we anticipated the CFPB’s stance that BNPLs that extend credit and have unique access to consumer spending/behavioral data wouldn’t be able to offer an online marketplace platform or leverage data in such way that lets them conduct targeted marketing, as that increases the risk of promoting consumer indebtedness,” wrote the analyst.