The Buy Now, Pay Later (BNPL) industry has been under the regulatory microscope as these products continue to gain popularity with Millennial and Gen Z consumers. But, what kind of marketing compliance issues are they facing, and how can organizations get ahead of potential risk?
Background
BNPL Usage
A recent study from Affirm revealed that American consumers are moving away from credit cards (due to confusing terms and conditions, hidden fees, and a lack of trust) towards more flexible payment options like BNPL. Given this, it’s no surprise that the number of BNPL users is expected to reach 79 million by the end of 2022-a 56.1% annual increase from 2021.
This consumer shift provides opportunities for BNPL organizations-but not without significant compliance and consumer protection risk.
Regulatory Oversight
While formal regulation for BNPL and Point-of-Sale (POS) Financing industry remains to be finalized, regulatory scrutiny has increased significantly in the U.S. over the past year, specifically from the Consumer Financial Protection Bureau (CFPB).
Here’s a recap of recent happenings from the CFPB regarding the BNPL industry:
- July 2021: Published a blog titled “Should you buy now and pay later?” about the processes, benefits, and risks of BNPL products.
- July 2021: Took its first enforcement action against a BNPL lender for failing to provide its merchants with adequate and sufficient training.
- December 2021: Opened a market-monitoring inquiry into BNPL credit and issued a series of orders to five BNPL companies to collect information on the risks and benefits of these fast-growing loans, specifically with concerns surrounding accumulating debt, regulatory arbitrage, and data harvesting.
- January 2022: Opened a public inquiry for anyone interested in the BNPL space to submit comments-including families, small businesses, and international regulators.
- July 2022: Published a blog post titled “Buy Now, Pay Later and Credit Reporting” that outlines the shortcomings of how BNPL data is furnished today and the CFPB’s recommendations for standardizing the process to resolve these challenges.
- July 2022: Director Chopra expressed concerns about big tech companies participating in the BNPL space, including its potential to “reduce competition and innovation in the market.”
- August 2022: The CFPB published a report outlining emerging risks in the BNPL space.
While these just scratch the surface of what’s been happening on the regulatory front for the industry, all signs point to continued regulatory focus on these organizations to ensure that they’re protecting consumers.
Top Marketing Compliance Issues for BNPL
PerformLine monitors thousands of merchant sites that offer buy now, pay later payment options daily for compliance by using proprietary technology and expert rulebooks to look for potential compliance issues.
Given the increased regulatory focus on this industry, PerformLine took a deep dive and reviewed thousands of merchant partner web pages for BNPL offerings to identify the top five remediated terms and categories that companies use to ensure merchant partners are adhering to marketing and compliance requirements on published content across the web.
Below is a summary of the findings:
5. Instant Approval: Deceptively promising consumers instant approval or financing for a product.
4. Product Descriptions: Inaccurate description of a product or business model by merchants (i.e using “Buy Now, Pay Later” instead of “Lease-to-Own”).
3. Credit: Inaccurate documentation of what the credit check process, including promises like “no credit check” or “no credit needed.”
2. Disclosures: Outdated or missing disclosures across merchant websites.
1. Financing: Specifically for lease-to-own products, merchants inaccurately describe the product using financing language.
For more context and information, download the full study here.
Takeaway
Proactive monitoring is key. While formal regulation in the U.S for the BNPL industry is still looming, this study shows that it’s never too early to implement a monitoring and remediation program for merchant partners, especially as it pertains to how they’re presenting and marketing purchase agreements and details.
BNPL Marketing Compliance Solutions
With PerformLine, your BNPL organization can gain complete visibility into your merchants’ activities. See how they are representing your relationship and financial offering(s) to ensure compliance with regulatory and brand standards.
PerformLine’s omni-channel solution was built to automate the discovery and monitoring of potential regulatory and brand compliance violations, on all internal and merchant partner channels including web, calls, messaging, emails, documents, and social media. Our turn-key, industry rulebooks are built on years of experience working with regulators and industry clients.
Schedule a quick demo with our team today to see PerformLine in action.
Gianna Kennedy