70% of BNPL CFPB Complaints Are Lodged Against One Provider

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

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

Although comments from the public are not yet public, a few reports from consumer advocate groups, small businesses and consumers have been published. Some of these reports show that the number of complaints against BNPL companies has risen over the last year, no doubt consistent with the sharp rise in the volume of BNPL transactions. It appears that many of those complaints reflect problems that companies should fix to improve their services instead of a market failure that regulation should address.

For instance, consumer advocate group U.S. PIRG published a report on March showing the number of complaints received by the five most downloaded BNPL apps, the type of complaint filed and why the CFPB should act to protect consumers. According to the report, the data has been 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 figure that is striking is that roughly 70% of the complaints (430 out of 616) were filed against one company. This could suggest that this company, rather than the whole sector, has a problem that needs to be addressed.

Looking at the data in more detail, we can also see that the main issues consumers complain about are “incorrect information in your report” and “attempts to collect debt not owed.” According  to this data, the majority of the complaints are related to how the companies process information from consumers and merchants and what they do with that data, rather than how the BNPL business model works.

If this analysis holds true with a larger sample of complaints and the data provided by the BNPL  companies, the CFPB may focus on one of the three areas that is investigating, this is, regulatory arbitrage, to make sure that companies adhere to the right consumer protection laws and offer adequate consumer protection. The consumer report doesn’t raise significant issues with the “accumulation of debt” or “data harvesting”, the other two areas that the CFPB is investigating.

Read more: The CFPB and BNPL: 3 Things to Watch

The report concludes by recommending the CFPB to monitor consumer complaints, look for changes in the business model and consider greater regulating and enforcement, but without specifying which regulation may be needed.

The CFPB will evaluate all the submissions after March 25 and it will take a decision on what is next. If the CFPB decides to take further actions, according to the letter sent to the BNPL firms in December, rulemaking is an option, but enforcement is not off the table either. CFPB’s new procedural rules now include administrative proceedings to find if there is a violation of the law.

See also: CFPB’s New Procedural Rules May Be a Game-Changer