Sahil Soni

I. Introduction

On September 15, 2022, the Consumer Financial Protection Bureau (“CFPB”) made a long-anticipated announcement that will have profound implications on the increasingly variegated landscape of consumer finance. This comes nearly a year after the agency exercised its market monitoring order authority under section 1022(c)(4) of the Consumer Financial Protection Act to launch an inquiry into the five largest buy now, pay later (“BNPL”) lenders operating in the United States: Affirm, Afterpay, Klarna, PayPal, and Zip.[1] Pursuant to the market monitoring order, the CFPB ordered that these five lenders turn over extensive documentation regarding their market activities, as well as soliciting comments from the public. In September, the agency finally unveiled its findings, announcing plans to analogize future treatment of BNPL providers to regulations currently imposed on credit card providers.[3]

In the aftermath of this announcement, questions remain as to long-term efficacy of analogous treatment of credit-card regulations. This is in part because of the unique institutional relationship between BNPL lenders and partnering merchants, which transforms the lender into taking on a subsidiary marketing channel role, uniquely impacting consumer behavior.[4] In anticipation of the CFPB’s promulgation of rules regulating BNPL products, it is worth outlining here some of the basic findings of the agency and how they may manifest in the regulation of BNPL products, along with how this may be optimized in the future.  

II. How BNPL Works

Put simply, BNPL is a type of installment plan which allows consumers to divide their purchases into multiple—typically four—equal payments over a period of time, with the first installment due at checkout and the remaining periodically billed to the buyer’s credit or debit card.[5] At checkout, e-customers will typically see an option under payment method to select buy now pay later, taking them to a page which solicits relevant identifying information and renders a decision on their credit approval nearly instantly. Unlike traditional payment plans, BNPL are interest-free products; lenders charge partnering merchants transaction fees of about 4-6% in exchange for the promise of increased sales.[6] The uniqueness of this relationship between lender and merchant merits special attention, as the natural outgrowth of such an arrangement is maximizing consumer spending: in addition to merchant fees, most BNPL lenders also levy late fees on consumers for missed payments.[7] Recent surveys suggest that more than one-third of American consumers have used BNPL plans while shopping online, with only one-fifth of these purchasers understanding the underlying payment structure.[8]

 Originally seen as a niche payment plan for fashion merchandise and apparel in the mid- 2010’s,[9] BNPL products now command industry-wide attention, with Apple announcing in its latest iteration of iOS its plan to offer “Apple Pay Later”; other large companies have announced similar plans.[10] This move reflects the increasing saturation of the BNPL industry, which grew rapidly during the pandemic, with aggregate loans of the five largest offerors totaling over $24 billion in 2021, up from roughly $2.4 billion in 2019.[11] The success of these financial products has coincided with increasing preferences of consumers for e-commerce in the aftermath of the profound changes brought about by the ongoing pandemic, and there is little reason to suppose that this trend will reverse in the near future. Moreover, modern consumers have increasingly expressed an interest in streamlined, digitalized financial products that integrate point of sale with approval for installment loans.[12] The product capitalizes on increased consumer awareness and understanding as to the perils of interest accumulation, emphasizing the lack of interest and offering ready-made explanations detailing how this “too-good-to-be-true” plan is supported by merchant fees on the backend. Despite the recent explosion in BNPL products, there is little empirical research in their effects in both the short- and long-term on consumer behavior.

III. Moving Forward after the September 2022 Report

Among the major findings announced by the CFPB were observations as to the overextension of debt by consumers and the compounding nature of data harvesting. The CFPB has announced plans to analogize treatment of BNPL providers to credit-card providers.[13] CFPB Director Rohit Chopra has recently commented that BNPL providers are utilizing data relating customer spending preferences in an unprecedented manner: they are “harvesting and leveraging data in ways we don’t see with other companies,” adding that “through their proprietary interfaces, they can see which products we buy through product placement.”[14] This suggests that he is particularly concerned with the inconsistent data collection procedures utilized by major providers along with the impact such targeting and advertising may have on consumers.

While BNPL plans offer the opportunity of extending installment plans for the purchase of staples to consumers to whom these may not otherwise be available, they currently exist at the forefront of the digitization of consumer financial behavior and data collection. As the September 2022 Report confirms, it is crucial to dedicate attention to appropriately enforcing consumer protection law to check against the risk of overextension of debt and the concomitant distortion in discretionary spending by consumers still reeling from the ongoing effects of the pandemic.


[1] BUREAU OF CONSUMER FINANCIAL PROTECTION, Consumer Financial Protection Bureau Opens Inquiry into “Buy Now, Pay Later” Credit (Dec. 16, 2021),

[2] Notice and Request for Comment Regarding the CFPB’s Inquiry into Buy-Now-Pay-Later (BNPL), 87 Fed. Reg. 3511 (Dec. 16, 2021).

[3] BUREAU OF CONSUMER FINANCIAL PROTECTION, Buy Now, Pay Later: Market Trends and Consumer Impacts (Sept. 15, 2022) (“September 2022 Report”),

[4] Marshall Lux & Bryan Epps Grow Now, Regulate Later? Regulation Urgently Needed to Support Transparency and Sustainable Growth for Buy-Now, Pay-Later." M-RCBG Associate Working Paper Series No.182 (April 2022).

[5] For example, Klarna’s “Pay in 4” Plan involves four equal payments with the first paid upon checkout and the remaining three weeks collected every two weeks. Klarna, Pay in 4 (Accessed Oct. 27, 2022),

[6] Brian Riley, The Buy Now Pay Later Merchant Proposition: Credit Card Interchange Is Cheaper, Mercator Advisory Grp. (Mar. 26, 2021),

[7] How Buy Now, Pay Later is Transforming Online Shopping, BigCommerce (last visited Oct. 27, 2022),

[8] Maurie Backman & Jack Caporal, Buy Now, Pay Later Services Grow in Popularity, The Ascent (July 18, 2022),

[9] Julian Alcazar & Terri Bradford, The Appeal and Proliferation of Buy Now, Pay Later: Consumer and Merchant Perspectives, Fed. Rsrv. Bank Kan. City (Dec. 1, 2021),

[10] What’s New in Apple Pay, Apple (last visited Oct. 27, 2022),

[11] September 2022 Report at 3.

[12] Ed DeHaan et al., Bun Now Pay (Pain?) Later (September 26, 2022) (working paper)

[13] Steven M. Kaplan et al., CFPB Releases Long-Awaited Report on Buy Now Pay Later Industry, Mayer Brown (Sept. 29, 2022),

[14] BUREAU OF CONSUMER FINANCIAL PROTECTION, Director Chopra’s Prepared Remarks on the Release of the CFPB’s Buy Now, Pay Later Report (Sept. 15, 2022), .