By Sam Boughedda
The Consumer Financial Protection Bureau said Thursday that buy now, pay later products can offer consumers facing mounting debt a more affordable option than high-interest credit cards.
Buy now, pay later products, which allow people to pay for items or services in installments over an extended period, rose in popularity during the pandemic.
This attracted regulator scrutiny on BNPL firms such as Affirm Holdings (NASDAQ:AFRM). As a result, the CFPB began looking into BNPL products over concerns regarding buyer protections.
However, in a report released Friday, the CFPB's comments show that some of those concerns have eased.
The regulator said that while many BNPL borrowers that they observed used the product without any noticeable indications of financial stress, "BNPL borrowers were, on average, much more likely to be highly indebted, revolve on their credit cards, have delinquencies in traditional credit products, and use high-interest financial services such as payday, pawn, and overdraft compared to non-BNPL borrowers."
In addition, the firm stated that BNPL borrowers had more elevated credit card utilization rates and lower credit scores, but that "many differences between BNPL borrowers and non-borrowers pre-date BNPL use."
"Further, contrary to the widespread misconception, BNPL borrowers generally have access to traditional forms of credit. In fact, they were more likely to borrow using credit and retail cards, personal loans, student debt, and auto loans compared to non-BNPL borrowers," they added.
The CFPB report calculates that the majority of BNPL borrowers "would face credit card interest rates between 19 and 23 percent annually if they had chosen to make their purchase using a credit card."
Reacting to the report, TD Cowen analysts said that the CFPB study "finds benefits to consumers from Buy Now, Pay Later."
"This doesn't eliminate the threat of CFPB regulation or enforcement, but it does suggest it will be a lower priority for an already busy agency. That is unexpected positive news for Buy Now, Pay Later," wrote analysts.