Senate Democrats say buy now, pay later, products go unregulated

Senate Banking Democrats see the specter of the 2008 financial crisis in emerging technology-based lending products that lack the consumer protections found in traditional forms of lending, 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. Leading up to 2008 was marked 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 bench hearing Tuesday.

“We have now seen a migration into the unregulated part of the financial industry. A huge amount of new consumer products [have] emerging in this area,” Warner said. “Some of these things bring real benefits, but I think we sometimes focus almost exclusively on the benefits and not some of the challenges. The truth is, I think there are reasons 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 consumers went online through lockdowns. Spending on the products increased 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 purchased online, in a set number of installments over a set period of time, typically four payments over six to eight weeks. Consumers incur fees and may be banned from using the Service if they default. Providers make money from merchants who pay a fee to offer the services to customers.

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