A regulatory framework to oversee Buy Now, Pay Later firms has been laid out by the US Consumer Financial Protection Bureau (CFPB). 

The framework is believed to be as a result of fears for consumer expenditure as the alternative payment method has soared in popularity over the past several years. The US watchdog aims to offer guidance and implement sector standards for BNPL providers.

Supervisory examinations were also on the CFPB’s agenda as its Director, Rohit Chopra, has declared that the fintech companies operating within the traditional financial sector are ‘increasingly encroaching’. 

He told reporters: “In the US, we have generally had a separation between banking and commerce, but as big tech-style business practices are adopted in the payments and financial services arena, that separation can go out the door.”

This announcement from the CFPB may add further pressure to the sector. BNPL firms, after flourishing last year, have experienced a year of declining valuations and lack of funding, compounded further by rising inflation and a worsening economic climate. 

Along with major cutbacks to staff, Klarna has seen its valuation fall 85% from $46bn last year to $6.5bn in July. Popular providers such as Affirm and Zip have also drastically fallen in worth, dropping 90% and 95% respectively. 

The CFPB reported it was concerned with BNPL products that could pose a risk to customers. The US watchdog outlined a lack of standardised disclosures from the five companies surveyed in its report, highlighting that customers can become overextended. 

Affirm, Block, Afterpay, Klarna, PayPal, and Zip accumulated a combined total of 180 million total loans last year, resulting in $24.2bn, a 200% increase from loans in 2019. 

BNPL providers do not give data to credit reporting agencies, according to the CFPB, revealing that lenders may have an incomplete picture of borrower’s spending limits – something which the agency posed as a consumer risk and will begin to identify surveillance practices BNPL firms should avoid. 
The UK’s Financial Conduct Authority (FCA) has also expressed concerns regarding practices stemming from misleading consumers in marketing campaigns.