CFPB Signals Rulemaking Push for Nonbank Personal Loans, Including BNPL

The Consumer Financial Protection Bureau has been busy — with the latest salvo of (possible) rulemaking looming for buy now, pay later (BNPL) loans, earned wage access and other financial products.

The CFPB sent a letter detailing the move to the Consumer Bankers Association and Center for Responsible Lending Wednesday (Jan. 8). These entities filed a petition in 2022 that asked the CFPB to make new rules that would bolster the supervision of nonbank providers of personal loans. The bureau estimated in its letter that lending from nonbanks has been tied to 85 million accounts, with outstanding loans totaling more than $125 billion.

The initial petition stated that “the absence of a rule defining larger participants in the market for personal loans has created an unlevel playing field and a large risk to consumers that the bureau can and should resolve through a larger participant rulemaking.”

What’s Under Consideration

Among the loans that should face greater scrutiny, per the CBA and the CRL, is the category of “other personal loans,” which they said encompasses three types of products: short-term installment loans (including BNPL), which typically range from three months to one year; longer-term loans; and revolving loans or lines of credit.

In addition, the petitioners said, “a sizable portion of consumers who use other personal loans — especially consumers obtaining those loans from non-depositories — tend to be economically vulnerable consumers who either cannot obtain credit via credit card or HELOC, have exhausted their available credit, or have acquired so much debt that they need to refinance.”

Elsewhere, the petition recommended that “the bureau cover both closed-end installment loans and open-end lines of credit. In truth, the line between these two products is often indistinct,” and BNPL loans, in particular, have been debated as existing as open or closed loans.

“Grouping closed-end and open-end loans into the definition of a single, personal loan market will avoid any such potential inconsistency with respect to bureau supervision and avoid potential uncertainty as to the coverage of BNPL loans,” the petitioners said.

The Response

In its response from this week, the CFPB said “concerns about the existence of an unlevel playing field in the market for personal loans have merit. In particular, banks that offer credit cards and nonbanks that offer payday loans (including traditional payday loans or online or app-based payday loans that are sometimes marketed as ‘earned wage’ products) are subject to CFPB supervision, while other nonbanks in the personal loan market (e.g., buy now, pay later and installment lenders) generally are not.”

PYMNTS Intelligence reported last week that more than 56% of consumers used installment payment options in the last year. Consumers are happy with these plans, with 76% of BNPL users reporting high levels of satisfaction.

Any rulemaking would come on top of May rules that were already focused on BNPL loans. These rules classified BNPL firms that provide pay-in-four options as credit providers. By extension, consumers using BNPL must be afforded the same legal protections that are tied to credit cards, as covered under Regulation Z.

In broad terms, BNPL users can dispute charges or demand refunds, while BNPL lenders pause payments during those disputes.

Since the rule took effect in July, providers have responded that the CFPB has not accounted for the fact that closed-end BNPL loans and payment periods are constructed in ways that render it challenging (and some firms have said “impossible”) to send periodic statements within 14 days ahead of required payments.