In a blog published on June 15, the Consumer Financial Protection Bureau (CFPB) indicated that Buy Now, Pay Later (BNPL) lenders and Nationwide Consumer Reporting Companies (NCRCs) may need to work more closely together to standardize BNPL payment data to ensure adequate credit reports.
CFPB, last year, launched a market monitoring inquiry into BNPL. One of the issues included in the inquiry was data furnishing by BNPL firms to consumer reporting companies. The agency also launched a public consultation at the beginning of the year. However, after receiving thousands of comments, the bureau hasn’t publicly stated what the next steps are.
According to the CFPB, until recently, few BNPL lenders furnished information about consumers to the NCRCs. This lack of furnishing could have effects on consumers and the credit reporting system. It could be bad for BNPL borrowers who pay on time and may be seeking to build credit, since they may not benefit from the impact that timely payments may have on credit reports and credit scores. It may also impact both BNPL lenders and non-BNPL lenders seeking to understand how much debt a prospective borrower is carrying, the bureau explains.
The CFPB believes that when BNPL payments are provided, it is important to provide both positive and negative data. The agency goes one step further and encourages the industry to adopt standardized BNPL furnishing codes and formats appropriate to the unique characteristics of the product. This standardization, the CFPB argues, would facilitate the consistent and accurate provision of BNPL payment information. The CFPB “expects” scoring companies and lenders to build models that account for BNPL loans’ unique features.
BNPL providers and NCRCs — at least Equifax, Experian and TransUnion — are already working on different models to share BNPL payment data. However, the bureau is concerned that each NCRC may build a different model, treating data differently and missing some potential benefits of the BNPL data provided. The bureau mentioned one example where a NCRC is allowing BNPL lenders to provide payment data in the format of their choice, which in the agency’s view has “potential inconsistent downstream impacts on consumers’ credit reports and scores.” Other NCRCs are planning to create “specialty” files separated from the “core” credit files used to generate traditional credit reports. If BNPL data is maintained in these specialty files, these data may not be reflected in traditional credit reports and credit scores, the CFPB argues.
And here is where the bureau comes in. The CFPB suggests that all these problems can be solved if companies adopt a standardized method to furnish BNPL data. Despite the challenges of providing data in a standardized format, the bureau is encouraging BNPL providers and NCRCs to find a way of doing it. For the time being, this recommendation stems from a blog post with no binding effects — but the agency is already warning the parties that it will monitor the progress on this issue, and it may not stop at a mere non-binding recommendation. The last sentence in the blog suggests credit report standardization may play a bigger role in industry regulation. “In the coming months, we will revisit this issue as part of a broader report on the industry stemming from our market monitoring order and responses to a public request for comments,” the CFPB said in the blog post.
Source : PYMNTS