On January 13, the Consumer Financial Protection Bureau (CFPB or Bureau) released a report providing its analysis of the growth and impact of Buy Now, Pay Later (BNPL) loans in the United States since 2019. BNPL loans, typically zero-interest loans repaid in four or fewer installments, have not been widely reported to nationwide consumer reporting companies, creating a lack of data, according to the CFPB. (Most consumer reporting agencies do not offer a readily available mechanism to report BNPL loans.) The stated purpose of the CFPB’s study was to bridge that gap by using a matched sample of BNPL applications and originations from six major BNPL firms along with corresponding de-identified credit records.

The report highlights the significant increase in BNPL applications and approval rates from 2019 to 2022. The number of daily applications rose from just over 100,000 in 2019 to well over 1 million in 2022. The approval rate also increased from 56% in 2019 to 79% in 2022, apparently driven by the use of counteroffers and the inclusion of returning customers.

Key findings by the CFPB, include:

  • Prevalence of BNPL Use:
    • In 2022, 21% of consumers with a consumer record financed at least one purchase using BNPL, up from 17.6% in 2021.
    • Approximately 20% of these borrowers were heavy users, originating more than one BNPL loan per month on average.
  • Increase in BNPL Loans:
    • The average number of annual BNPL originations per borrower increased from 8.5 in 2021 to 9.5 in 2022.
    • 63% of borrowers originated multiple simultaneous BNPL loans at some point during the year, with 33% doing so across multiple firms.
  • Credit Approval Rates:
    • BNPL credit approval rates increased from 67% in 2020 to 79% in 2022, partly due to the increased use of counteroffers.
      • Rather than declining the application, BNPL lenders have begun making counteroffers, including, for example, a downpayment above the typical 25%, or a lower amount of credit offered.
    • Among applicants with subprime or deep subprime credit scores, BNPL lenders approved 78% of applications in 2022.
  • Demographics of BNPL Borrowers:
    • Borrowers with subprime or deep subprime credit scores made up the majority of BNPL originations, with deep subprime borrowers accounting for 45% and subprime borrowers for 16%.
  • Default Rates:
    • BNPL default rates remained lower than those for credit cards, with BNPL borrowers defaulting on 2% of their loans compared to 10% for credit cards.
      • Differences in default rates may be the result of how repayments are set up between the two different products. For example, most BNPL firms require customers to set up automatic repayments.
  • Unsecured Debt Balances:
    • Consumers with at least one BNPL loan in a given month held higher balances on other types of unsecured consumer credit, including personal loans, retail loans, student loans, and credit cards.
    • On average, BNPL borrowers held $22,163 in monthly unsecured consumer credit, with BNPL purchases making up 17% of their total unsecured debt in the months they borrowed.
  • Age Group Analysis:
    • BNPL purchases composed a higher percentage of total unsecured debt for borrowers aged 18-24, making up 28% of their total unsecured consumer debt compared to an average of 17% among borrowers of all age groups.
  • Credit Card Utilization:
    • Prior to first-time BNPL use, average credit card utilization rates increased, suggesting that lower credit card liquidity may encourage consumers to finance purchases with BNPL.

The report also identifies the practice of what the CFPB refers to as “loan stacking,” i.e., where borrowers have multiple active BNPL loans. In 2021 and 2022, 63% of BNPL borrowers had simultaneous loans at some point, with 32% having loans across different firms. The CFPB noted that this practice is particularly pronounced during the holiday season.

Our Take

The CFPB’s report is just the latest publication from the Bureau focused on BNPL products. In September 2024, the CFPB issued a set of frequently asked questions providing guidance on applying Regulation Z requirements to BNPL products accessed through digital user accounts, discussed here. Those FAQs followed the Bureau’s interpretive rule issued in May of 2024, discussed here, subjecting BNPL transactions to provisions of Regulation Z applicable to “credit cards.”