The U.S. Consumer Financial Protection Bureau is looking to regulate "buy-now, pay-later" companies like Klarna and Affirm Holdings, Inc AFRM following concerns that their fast-growing financing products are harming consumers.
CFPB director Rohit Chopra disclosed that the CFPB would issue guidance or a rule to align sector standards with credit card companies and implement appropriate supervisory examinations.
Credit card companies are already under pressure due to rising funding costs and lower American consumer spending during soaring inflation, Reuters reports.
Chopra had pledged to scrutinize tech-driven companies as they increasingly encroach on the traditional financial sector.
A CFPB inquiry found that BNPL providers Affirm, Block, Inc's SQ Afterpay, Klarna, PayPal Holdings, Inc PYPL, and Australia's Zip Co originated a combined 180 million loans in 2021, totaling $24.2 billion, a more than 200% increase from 2019.
CFPB highlighted a lack of standardized disclosures across the five companies surveyed posing consumer risks. It stressed that BNPL providers do not give data to credit reporting agencies, leading to an incomplete picture of a borrower's liabilities, including BNPL loans at rival companies.
The agency also pointed to customer data collection as a consumer risk and said it would start identifying data surveillance practices BNPL companies should avoid.
CFPB highlighted a deterioration in credit performance on Buy Now, Pay Later loans. Overextension is also a significant issue in the broader credit card market.
Price Action: AFRM shares traded higher by 0.51% at $24.46 on the last check Thursday.
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