On March 2, 2023, the Consumer Financial Protection Bureau (CFPB) published a new report analyzing the financial profiles of Buy Now, Pay Later (BNPL) borrowers.  While the report finds that many BNPL borrowers who the CFPB 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 report finds that BNPL borrowers had higher credit card utilization rates and lower credit scores.  The report follows previous CFPB research on the BNPL market. 

As the report notes, BNPL began gaining ground in the United States in 2019, but between 2019 and 2021, the number of BNPL products issued to consumers increased by almost tenfold.  For the purposes of this report, BNPL refers exclusively to the zero-interest, pay-in-four (or fewer) installment product that facilitates purchases at the point of sale.  

The data for the report comes from the 2022 Making Ends Meet survey (the survey look-back period was from February 2021-February 2022), and the CFPB’s Consumer Credit Panel, which contains an anonymized sample of credit bureau records. 

Some of the key findings from the report include:

  • Overall, 17% of consumers with a credit record used a BNPL loan in the year prior to the survey;
  • Approximately 95% of BNPL borrowers had at least one credit record in another account, compared to 86% of non-borrowers;
  • BNPL borrowers had significantly higher usage in several other consumer credit products when compared to non-borrowers, including retail accounts, personal loans, and student loans;
  • Black, Hispanic, and female consumers are more likely to use BNPL products, along with consumers with income between $20,001-$50,000, compared to white, non-Hispanic and male consumers, or those with household income below $20,000;
  • Those with at most a high school degree are less likely than consumers with at least a bachelor’s degree to use BNPL and consumers with a super-prime credit score are less likely than those with a deep subprime score to borrow using BNPL;
  • BNPL financing is not as prevalent among consumers age 65 and older compared to consumers younger than 65;
  • Among consumers who have open credit or retail cards, personal loans, auto loans, student loans or mortgages, BNPL borrowers were more than twice as likely to be delinquent on at least one of those products by 30 days or longer;
  • More BNPL borrowers had at least one reported delinquency in another account, as compared to non-borrowers (delinquency rates were substantially higher for credit and retail cards among BNPL borrowers compared to non-borrowers);
  • BNPL borrowers are also more likely to use high-interest financial services such as payday loans, pawn loans, and bank account overdrafts;
  • BNPL borrowers have lower liquidity and savings on average compared to consumers who did not use BNPL;
  • BNPL borrowers also typically had lower credit scores than non-borrowers (because lower credit scores lead to higher interest rates on traditional credit products, BNPL products with no interest provide an attractive alternative to many consumers); and
  • The report estimates that a majority of BNPL borrowers would face credit card interest rates between 19 and 23% annually if they had chosen to make their purchase using a credit card.

The report finds that many of these differences pre-date BNPL use and highlights the need for further research into whether the products have any causal impact on consumer indebtedness.

Notably, this report has several other limitations.  First, identification of BNPL use is based solely on consumer self-reporting and reported for only one point in time.  Second, because the sample timeframe for the survey encompasses consumers with a credit record, this report necessarily omits information on those consumers without a credit record.  Third, the report cannot distinguish whether BNPL usage leads to more delinquencies on other obligations or whether consumers who are already in distress are more likely to use BNPL products to pay off higher-interest debt. 

As CFPB Director Rohit Chopra noted in the press release accompanying the report, this analysis shows that BNPL borrowers are more likely to use other credit products, which suggests that BNPL may indeed not lack access to other forms of credit.  In addition, Director Chopra noted that because the CFPB considers BNPL to be akin to other forms of consumer credit, the CFPB is “working to ensure that borrowers have similar protections and that companies play by similar rules.”  While Director Chopra previously asked CFPB staff to pursue a number of additional steps in relation to BNPL products, in addition to ongoing market monitoring, he has not provided timelines for these next steps.  However, this report is a further illustration of the CFPB’s increased oversight and scrutiny of the BNPL sector.

Further information on the CFPB’s previous findings on BNPL market trends can be found here.