Senate Democrats say buy now, pay later products lack oversight
Financial Service

Senate Democrats say buy now, pay later products lack oversight

Senate Banking Democrats see the specter of the 2008 financial crisis in emerging technology-based lending products that lack the consumer protections applied to traditional forms of credit, including buy now, pay later services.

Sen. Mark Warner, D-Va., warned that unregulated financial products have migrated from the commercial to the retail sector since the last crisis. The lead-up to 2008 was characterized by the proliferation of asset-backed securities and collateralized debt obligations, but now it’s the rise of consumer-focused fintech services, including buy now, pay later and advanced paycheck products, he said at a Senate Banking hearing Tuesday.

“We’ve seen now a migration in the nonregulated part of the financial industry. A massive amount of new consumer products [have] come up in this area,” Warner said. “Some of these things bring real benefits, but I think we focus sometimes almost exclusively on the benefits and not on some of the challenges. The truth is I think there are reasons that we have regulated financial institutions and with that regulation while there are burdens, there are also some benefits.”

Buy now, pay later products rose in popularity during the pandemic as lockdowns drove consumers online. Spending through the products grew 230 percent from January 2020 to September 2021, according to a study commissioned by buy now, pay later provider Afterpay.

The service allows consumers to pay for a product, often bought online, in a set number of installment payments and a predetermined period of time, usually four payments over six to eight weeks. Consumers accrue fees and can be cut off from using the service if they fall behind schedule. The providers make money from merchants, who pay a fee to offer the services to customers.