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BNPL + Student Loans: The Risks and How to Stay Compliant

In today's day and age, you can buy just about anything now and pay for it later-including student loans.

According to a report from Student Borrower Protection Center (SBPC), Buy Now, Pay Later (BNPL) lenders are offering student loan financing options at a number of for-profit schools. The report calls out that the perceived risky nature of BNPL loans, coupled with the regulatory concerns of certain for-profit colleges, brings forward consumer protection and compliance challenges for these lenders.

Heightened Regulatory Scrutiny

For-profit institutions have already caught the eye of regulators over the past few months. In November of 2021, the FTC resurrected its Penalty Offense Authority and put these institutions on notice concerning deceptive or unfair conduct, including for claims made about post-grad job opportunities.

The BNPL industry has also been a hot regulatory topic as these products continue to gain popularity. Regulators have expressed concerns over how easily consumers can fall into debt and that many BNPL products fall outside of key consumer protection laws that protect consumers from predatory or deceptive lending practices, such as the Truth in Lending Act (TILA).

Consumer Protection Concerns

SBPC's report found that BNPL financing is offered particularly at institutions focused on worker training and "upskilling," which typically promise high-paying jobs post-graduation. Historically, "many institutions have proven to underdeliver on those promises, leaving students with unaffordable debts and ‘useless’ degrees.”

Students at these types of schools also lack vital protections that other borrowers typically rely on for traditional colleges, such as TILA. According to SBPC, "students enrolled in these for-profit schools are subject to big and unexpected fees, damage to their credit, a lack of remediation in the event of fraud, the inability to seek justice in court in the event of a dispute, and other harmful events."

How to Stay Compliant

To help protect student borrowers and other consumers from the risks outlined above, the SBPC recommends:

  • The Consumer Financial Protection Bureau (CFPB) should write new rules to provide all students with the same substantive protections offered to students who attend traditional colleges
  • The CFPB should prioritize enforcement and supervision of BNPL companies' illegal conduct
  • The CFPB + FTC should scrutinize the relationship between large online education providers and firms offering BNPL products to students

Although these are just recommendations and the CFPB and FTC haven't released anything on it (yet), there are some steps that BNPL organizations can take now to proactively protect their business and consumers.

In a recent BNPL Industry Roundtable discussion, guest speaker Eamonn Moran, Of Counsel at Morgan, Lewis & Bockius LLP shared a few best practices for getting out ahead of regulation:

  • Focus on compliance with broad consumer protection regulations, such as UDAAP and fair lending laws. All financial products are subject to comply with these.
  • Ensure your marketing materials are free of deception. Double-check for accuracy and make sure all proper disclosures are made to avoid risk.
  • Maintain a solid compliance management system
  • Update policies and procedures and review them often
  • Keep an eye on merchants' pages for required disclosures and to check that their marketing materials are free of deceptive or misleading content

Be Proactive in Your Consumer Protection Efforts

PerformLine is helping BNPL issuers thrive by making marketing compliance scalable, actionable, and efficient. Learn how PerformLine can find and mitigate compliance risk across your marketing channels, including merchant partners. Read this BNPL customer story to learn more.

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