OCC Says Banks Must Take ‘Safe and Sound’ Approach to BNPL

The Office of the Comptroller of the Currency (OCC) has issued a guidance to national banks and federal savings associations addressing buy now, pay later (BNPL) lending.

“The OCC expects banks that offer BNPL loans to do so in a manner that is safe and sound, provides fair access to financial services, supports fair treatment of consumers, and complies with applicable laws and regulations,” the agency said in a Wednesday (Dec. 6) press release.

The guidance says banks offering BNPL lending should minimize adverse customer outcomes through their underwriting, repayment terms, pricing and safeguards, according to the release.

They should also make their marketing materials and disclosures clear and conspicuous, the release said.

“Supporting a fair and inclusive financial system is a priority for the OCC and is critical to maintaining trust in the banking system,” Acting Comptroller of the Currency Michael J. Hsu said in the release. “As the buy now, pay later market grows and we enter the holiday shopping season, the guidance confirms our expectation that OCC-supervised institutions offering these products do so in a responsible manner.”

BNPL lending carries risks for both banks and consumers, according to the guidance.

The risks include borrowers overextending themselves or not fully understanding the loan repayment obligations, the guidance said.

Other risks for banks include the limited or lack of credit history of some BNPL applicants, third-party relationships that may reduce banks’ control over operational and compliance risks, and instantaneous credit decisioning that may increase fraud risk, per the guidance.

“Banks engaging in BNPL lending should do so within a risk management system that is commensurate with associated risks,” the guidance says. “Risk management systems should be designed to capture the unique characteristics and risks of BNPL loans.”

PYMNTS Intelligence has found that BNPL has become an increasingly sought-after alternative for consumers seeking financial flexibility.

Nearly half of American consumers have already embraced the payment method, according to “Buy Now, Analyze Later: A Deep Dive Into BNPL’s Disruption of Retail Payments,” a PYMNTS and Sezzle collaboration.