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Published on January 14, 2025
CFPB Report Reveals Surge in Buy Now, Pay Later Loans Among Consumers with Lower Credit ScoresSource: Google Street View

The Consumer Financial Protection Bureau (CFPB) has recently published insights into the borrowing behaviors surrounding Buy Now, Pay Later (BNPL) services. The report indicates an uptick in BNPL loans, especially among consumers with lower credit scores. According to the CFPB's findings, more than one-fifth of consumers with a credit record have utilized BNPL financing in 2022, representing an increase from the previous year.

These short-term loans, which typically allow consumers to divide a purchase into four or fewer payments, are of particular concern because of the demographic they appear to serve. A not-so-surprising 78 percent of such loans went to borrowers with subprime or deep subprime credit scores last year. The CFPB's research goes further, shedding light on the prevalence of multiple, simultaneous BNPL loans. Indeed, 63 percent of users at some point juggle more than one loan, while one-third engage with multiple BNPL lenders.

One significant consequence of this borrowing pattern is seen in the juxtaposition with other lines of credit. BNPL borrowers, it is observed, tend also to bear higher balances on diverse unsecured consumer debt vehicles such as credit cards and student loans. Before their first BNPL adventure, these individuals' average credit card utilization rates saw an uptick – hinting that BNPL may be a refuge for those with straitened credit card liquidity.

Younger users, particularly those between the ages of 18-24, seem to be increasingly reliant on BNPL schemes, with their BNPL debt accounting for 28 percent of their total unsecured consumer debt within borrowing months. That's a significant leap over the average 17 percent across all age brackets. Regulatory scrutiny follows close behind these patterns, as the CFPB in May 2024 confirmed that BNPL lenders must afford consumers certain key legal protections, akin to conventional credit cards. The shadow of consumer protection, it seems, grows long over the BNPL landscape.

For those seeking recourse, or simply to air concerns regarding financial products and services, the CFPB's siren calls. Complaints can be lodged through their website or via phone at (855) 411-CFPB (2372). Whistleblowers or employees who sense a violation of federal consumer financial protection laws have an avenue too, at [email protected].