Visa urged the Consumer Financial Protection Bureau to take a cautious approach to regulating buy now-pay later services in a March 25 filing with the federal agency.

"Given the variety of BNPL products available today and the existing requirements already in place, Visa believes that the CFPB should carefully consider the impacts of new policies, rules or guidance on the marketplace for BNPL," the San Francisco-based company said in the filing.

U.S. consumers in recent years have gravitated to the worldwide BNPL craze in which consumers can buy goods or services using financing from BNPL providers that lets them make installments of interest-free payments over a set period of time, usually up to about two months.

The craze has gotten CFPB Director Rohit Chopra's attention. The agency launched an inquiry into buy now-pay later (BNPL) providers last December after some Democratic senators and consumer activists complained that businesses were preying on consumers and enticing them to take on more debt than they might be able to afford.

As part of the inquiry, the bureau demanded that five of the leading BNPL providers – Affirm, Afterpay, Klarna, PayPal and Zip — provide detailed information about their business practices. It also asked consumers and other companies that might have an interest in BNPL to offer public comments on the new trend. The deadline for those submissions was March 25.

"The CFPB should tailor its approaches to preserve consumers’ and merchants' ability to access a wide variety of installment options and maintain competition among BNPL solutions, so that consumers have maximum flexibility to access the installment options of their choice," Visa also said in its filing.

Among the card services that Visa provides are single-use virtual cards that BNPL providers can use for payments over Visa's network, the company's filing said. BNPL providers let consumers use the Visa cards to tap the installment financing services for payments to merchants.

Visa is also rolling out a new BNPL service called Visa Installments, which allows card issuers, which are typically banks, to give cardholders the option to use BNPL with direct bank financing at some merchants, and also lets issuers offer post-purchase installment offers to their customers.

"Because BNPL products are still evolving, the policies that the CFPB adopts should take into account the variety of BNPL products that exist, without favoring any one specific BNPL experience," Visa said. "Many BNPL products are already covered by existing federal and state regulations governing consumer credit products. Further, many states, such as California, have laws that regulate BNPL providers, including making them subject to state licensing and registration requirements applicable to lenders."

In a last-minute flurry of some 40 submissions to the CFPB on the new financing tool, a group of state attorneys general and a coalition of nonprofits argued in two separate comments that consumers needed to be protected in using BNPL providers' services. 

In another submission, the National Association of Convenience Stores voiced concern about credit card fees associated with rising buy now-pay later sales, particularly given Mastercard’s plans to enter the BNPL market. "CFPB therefore should consider holding BNPL services to the standards applicable to analogous forms of credit," NACS said.

In its March 24 filing, Consumer Reports noted that consumers may become confused about the terms of their loans because of varying web and digital app designs. It has also logged problems for consumers in returning purchases. "Consumers who use BNPL with smaller companies or less reputable websites may face a higher frequency of difficulties," the consumer review media outlet said.

Banking industry groups called on the CFPB to create a level playing field and some trade groups defended BNPL practices. The American Bankers Association, a Washington, D.C.-based trade group, was among the organizations that spelled out its BNPL concerns in a filing to the federal agency.

"We are concerned that the rapid growth of BNPL products offered by unregulated companies presents risks to consumers, merchants, and the integrity of the consumer credit market," the ABA said. "To ensure consistent protections, it is imperative that these basic protections and sound practices are afforded to all consumers by all BNPL providers. Nonbank BNPL providers should be monitored for aggressive origination and underwriting practices, inadequate disclosures, and unpredictable credit reporting practices."

By Jonathan Berr on March 30, 2022
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