Shulou(Shulou.com)11/24 Report--

Beijing time on September 16 morning news, It is reported that because of concerns that Klarna and Affirm Holdings and other "buy first pay later" companies 'rapid growth of financial products may harm consumers, The United States Consumer Financial Protection Bureau (CFPB) plans to regulate such companies.

The CFPB does not currently regulate buy-before-pay companies or their products, but it said it would issue guidelines or regulations consistent with those of credit card companies. The CFPB also said it would implement appropriate monitoring and inspection mechanisms.

This would be a blow to the industry as a whole. In fact, such companies have already come under pressure from rising financing costs and inflation-driven lower U.S. consumer spending.

It also marks a major offensive by CFPB Director Rohit Chopra. He had promised to scrutinise technology-driven companies as they increasingly encroach on traditional finance.

"Banking and commerce in the U.S. are usually segregated, but that separation could be broken as the payments and financial services sectors begin to adopt the practices of large technology companies," he said. "

"Buy first and pay later" company

With the help of the "buy now pay later" service, consumers can pay for their consumption in installments. As U.S. consumers used e-commerce heavily during the epidemic, the popularity of such services soared. Each time a consumer completes a transaction through a "buy now pay later" service, merchants pay a fee to the provider.

In a survey last year, CFPB found that Affirm Holdings, Block's Afterpay, Klarna, PayPal and Australia's Zip issued 180 million consumer loans in 2021, totaling $24.2 billion.

However, the CFPB said in its report that it was concerned that these products could pose risks to consumers, highlighting the lack of standardized information disclosure mechanisms among the five companies surveyed and the potential to entice consumers to overspend.

The CFPB alleges that because buy-before-pay providers do not provide data to credit reporting agencies, borrowers may not have a full picture of borrowers 'debts, including consumers' loans to other buy-before-pay companies.

The CFPB said the way buy-first-pay-later agencies collect consumer data also poses risks, and they will gradually identify data surveillance practices that such companies should avoid.

Affirm's top priority is "to provide consumers with safe, honest, and responsible installment payments without late or hidden costs," an Affirm spokeswoman said in a statement. "

"Today represents a major step forward for consumers and integrity finance, and we are encouraged by the CFPB's conclusions following its review," the spokesman said. He noted that the CFPB report acknowledged that "buy now, pay later" significantly reduced costs for consumers compared to traditional credit products.

A Karma spokesperson said the company "remains committed to maintaining financial stability and protecting consumers through industry innovation and appropriate regulation."

A Zaip spokesperson said: "We are pleased that the CFPB recognizes the value that Buy Now Pay Later brings to consumers, including providing them with easy-to-use, low-cost credit, especially in this challenging economic environment. "

The Financial Technology Association is an industry group representing the interests of many buy-now-pay-later companies. Penny Lee, CEO of the group, said in a statement that the report identified "buy now pay later" as a competitor to high-interest credit products.

"We look forward to continuing to work with regulators such as the CFPB to promote positive outcomes for consumers. 'she said.

The CFPB was created in the wake of the 2008 financial crisis with a primary mandate to crack down on predatory lenders such as mortgage lenders and payday lenders.

While the agency hasn't regulated buy-now-pay-later companies in the past, chopra said in july that he has the authority to regulate them as they become more similar to traditional financial services companies.

But buy-now-pay-later companies may disagree.

Buy-now-pay-later shares have been under selling pressure this year. Affirm shares are down more than 75% for the year, and Zip is down 79%. Klarna's valuation plunged 85 percent in July.

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