CFPB Abandons Consumers to Abuses of Buy-Now-Pay-Later Loans
Without enforcement, military families and many others face ripoffs, harmed credit scores
By Christine Chen Zinner
Last week, the Trump CFPB announced plans to stop enforcing its previously issued Buy-Now-Pay-Later (BNPL) interpretive rule, which improves the price transparency of these loans to help people understand the real costs, fees, and charges that can accrue. This step risks amplifying the harms of BNPL loans, which include lower credit scores, lost bank accounts, and predatory fees. And it represents yet another example of the Trump CFPB actively siding with predatory lenders.
Consumers are being offered buy-now-pay-later loans at the check-out line at brick and mortar stores and at online check-out baskets at the point of payment. They are often marketed as a no-fee way to pay for something at a quarter of the price up front, giving people the option to make the rest of the payments in three installments over the next two to six weeks.
Loans Laden with Hidden Fees and Traps
Customers are lured into BNPL loans mistakenly thinking there are no risks involved, when in reality, some of the BNPL loans do charge late fees, subscription fees, bounced payment fees, and others. Advancing money that has to be repaid later with added fees and charges is a loan plain and simple. They may also be linked to a customer’s bank account or credit card, resulting in penalties such as late fees and overdraft fees when a BNPL payment is directly deducted from a bank account or credit card.
BNPL lenders claim they are offering a valuable service to financially vulnerable consumers, but those same consumers–without the benefit of transparency and clear fees–might be overextending their spending. People spend more when BNPL is offered, and its use leads to increased overdraft fees and credit card interest payments and fees. Most BNPL loans go to people with nonprime and lower credit scores and more than half of BNPL users (60 percent) held simultaneous loans and had higher balances on other credit lines. For frequent users of BNPL, that adds up to $176 annually for the average user, and up to $252 annually for especially vulnerable users.
Trump CFPB Exposes Servicemembers to New Risks
In what has become the Trump CFPB’s boilerplate, the agency said it was abandoning the BNPL protections so it could focus on “pressing threats to consumers, particularly servicemen and veterans.” The gratuitous embrace of Defense Secretary Pete Hegseth’s effort to delegitimize servicewomen by the CFPB should not blind us to the reality that the substance of the policy change will do real harm to members of the military and veterans.
Shutting down enforcement against BNPL hucksters will actually harm young military members and military families, especially junior enlisted members who are often young, less financially savvy, and struggling to make ends meet. Too often, they turn to high-priced BNPL loans that can leave them mired in debt.
When military households were surveyed on financial concerns, more than half shared that they were unable to save money (51 percent), experienced financial emergencies (57 percent), and some were even food insecure (14 percent). These are the same families that might be desperate enough to take out a BNPL loan to pay for groceries (which are one-fourth of BNPL purchases).
The BNPL rule increased transparency and made these products less risky by requiring periodic statements and fees to be disclosed and offered customers the opportunity to dispute fraudulent charges and errors. These protections would have at least offered a bit of transparency and make it a little easier for consumers to see how expensive a BNPL loan would be, and perhaps use this clarity to better manage their finances.
The full-fledged Trump assault on the CFPB, its mission, its rules, and its enforcement gives a green light to shady BNPL lenders and exposes people to increased risks from predatory products. And whatever their rhetorical flourishes, the Trump CFPB is doing wrong by servicemembers and veterans – as with so many other groups.
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