Credit reporting agency Equifax is putting a plan in place next year to add buy now, pay later (BNPL) plans to credit reports, which hasn’t always happened before, The Wall Street Journal (WSJ) reported.
The plan will give lenders a better picture of peoples’ financial commitments, including how much they owe on these plans, according to the report.
Using BNPL plans, shoppers can pay for goods in biweekly installments, accessing more cost-affordable ways to shop. But these types of plans aren’t always included in credit reports despite their increasing popularity and uses, creating an unseen area for lenders using the information on credit reports to see if an applicant can repay, WSJ reported.
Billions of dollars in committments aren’t reported, according to the report. Afterpay and Klarna, two of the biggest BNPL companies, each do billions of dollars’ worth in transactions, for example. While the payment plans are small, they can add up if used a lot. The problem ends up being that credit reports aren’t usually set up to display biweekly payments.
In addition, there’s a lag between when consumers open accounts and when lenders send the information for inclusion in credit reports, and the delay can outpace a fast repayment period, the report stated.
“Responsible lending benefits from a complete picture of a person’s financial obligations,” said Equifax CEO Mark Begor, per WSJ.
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BNPL plans have faced some scrutiny as of late, with the Consumer Financial Protection Bureau (CFPB) announcing it wants details from several of the biggest BNPL companies on the pros and cons of the flexible payment plans.
Read more: BNPL Stock Prices Crash Amid CFPB Investigation
The investigation will focus on consumers’ ability to rack up large debt through using the payment plans, along with the lack of regulations and the way data collection is handled.
The firms in question are Affirm, Afterpay, Klarna, PayPal and Zip.
