On November 2, the House Financial Services Committee’s Task Force on Financial Technology held a hearing titled, “Buy Now, Pay More Later? Investigating Risks and Benefits of BNPL and Other Emerging Fintech Cash Flow Products.” For the hearing, the task force invited both consumer advocates and industry tradespeople to address several products, including buy now, pay later (BNPL); earned wage access (EWA); and overdraft protection products. The task force’s primary concern is that these products — particularly BNPL — are designed in such a way that the disclosure requirements under the Truth in Lending Act and other credit laws may not apply.
BNPL programs are designed to allow consumers to purchase goods and to defer payment over a short term with little to no interest, but with the potential for fees in the event of nonpayment. Notably, Committee Chairwoman Maxine Waters asked several questions regarding BNPL programs, including whether providers conduct any sort of “ability to repay” analysis. Some representatives also voiced concerns that some BNPL providers do not report to the credit bureaus, resulting in an invisible obligation for the consumer that does not help their credit file.
EWA programs allow individuals to access their earned but not yet paid income in advance of their scheduled payday. In late 2020, the CFPB gave its blessing through an advisory opinion to certain types of EWA programs, as long as they were structured a certain way. Specifically, programs covered under the advisory opinion are offered through employers directly, and the consumer is not required to pay to access the EWA funds.
Overdraft protection products are intended to help consumers avoid bank overdraft charges on their accounts. A provider will gain access to the consumer’s bank account to monitor activity and will deposit money into the consumer’s account to prevent overdraft fees. Some providers offer the product for free and allow the consumer to “tip” for the service, while others may offer the protection as part of a membership plan that may also include cash advance services.
The focus on alternative financial products is not going away anytime soon. According to the task force’s research, BNPL use has increased 230% since early 2020, while the EWA market stands at 45 million users.