WASHINGTON, D.C. — The Consumer Financial Protection Bureau (CFPB) has released a comprehensive study shedding light on the behavior of consumers utilizing Buy Now, Pay Later (BNPL) services, an increasingly popular form of credit. The research reveals significant growth in BNPL borrowing, with notable implications for consumer debt and financial stability.
According to the report, more than one in five consumers with a credit profile used BNPL loans in 2022, a sharp increase from the previous year. These services, which allow shoppers to split purchases into smaller payments, often without interest, have been widely promoted as a simpler, safer alternative to traditional credit cards. However, the study raises concerns about the financial habits and risk profiles of BNPL users, as well as the broader impact on consumer credit markets.
Key Findings on BNPL Usage
The CFPB matched application data from six major BNPL providers—including Affirm, Klarna, and PayPal—with anonymized consumer credit records to better understand this emerging market. Its findings highlight the rapid expansion of these services and the growing dependency of certain demographics.
Prevalence of BNPL Loans
The study reports that, in 2022, 21.2 percent of consumers with a credit record financed at least one purchase using a BNPL product, up from 17.6 percent in 2021. Among these borrowers, 20 percent were classified as heavy users, taking out multiple loans each month. The average number of loans per borrower rose from 8.5 in 2021 to 9.5 in 2022.
Subprime Borrowers Dominate
One of the most notable revelations is the heavy reliance on BNPL loans among consumers with subprime or deep subprime credit scores. Nearly two-thirds of these loans—approximately 65 percent—went to individuals in these lower credit brackets, with lenders approving 78 percent of applications submitted by such borrowers.
Overlapping Loans
Many consumers appeared to use BNPL as a coping mechanism for limited access to traditional credit. The report found that 63 percent of users held multiple simultaneous BNPL loans at some point during the year, and one-third borrowed from more than one lender.
Broader Financial Trends
The CFPB uncovered a worrying association between BNPL usage and higher overall consumer debt. Borrowers utilizing these services were more likely to carry elevated balances across unsecured credit lines, including credit cards, retail loans, and personal loans. Furthermore, before their first BNPL use, these individuals tended to exhibit rising credit card utilization rates, signaling restricted liquidity as a motivating factor.
Younger Generation and BNPL Debt
The report also spotlights the impact of BNPL loans on younger consumers. Borrowers aged 18 to 24 relied more heavily on BNPL credit relative to their total outstanding debt compared to other age groups. For this cohort, BNPL purchases accounted for 28 percent of total unsecured consumer debt, compared to an average of 17 percent across all age brackets.
Broader Implications for Consumer Debt
The study underscores the growing influence of BNPL in reshaping consumer credit dynamics. The accessibility of these services has made them attractive to individuals with limited or damaged credit histories. However, the concentration of loans among subprime borrowers raises the potential for elevated financial vulnerability, particularly if overlapping debt obligations become untenable.
Because BNPL loans are not routinely reported to major credit bureaus, the study also highlights a significant gap in market transparency. Without comprehensive reporting, borrowers and lenders alike may struggle to fully assess debt obligations and credit risk.
CFPB’s Role in Monitoring BNPL Practices
The CFPB’s study represents a broader effort to oversee evolving financial products and improve consumer protections. While BNPL services offer convenience, the bureau’s findings emphasize the importance of ensuring these innovative products do not inadvertently contribute to heightened financial risks or undermine market stability.
By continuing to monitor this space and promoting transparency among lenders, the CFPB aims to address potential challenges posed by the rapid rise of BNPL borrowing while fostering a fairer and more sustainable consumer credit ecosystem.
For the latest news on everything happening in Chester County and the surrounding area, be sure to follow MyChesCo on Google News and MSN.