Top 5 Buy Now, Pay Later Compliance Issues Across Merchant Sites

#5 - INSTANT APPROVAL

The fifth most commonly monitored and remediated term(s) were “instant approval” and ”instant financing.” These terms essentially boil down to two main compliance concerns.

The first concern is that almost no one can promise approval for consumers without first looking at their financial situation, whether it’s instant or not. There are a number of different factors that are considered when it comes to approval, and organizations cannot mislead consumers by guaranteeing approval without prior analysis of their financial data.

The second concern is that the term “instant” is typically interpreted by consumers to mean within seconds or minutes. In many cases, approval can take anywhere from a few hours to a few business days. 

Instead, many clients instruct their merchants to replace language like “instant approval” or “instant financing” with phrases such as “instant decision” or “instant loan decisioning.” This way, consumers won’t be misled into thinking that they’ll get approval no matter what and level sets their expectations.

#4 - PRODUCT DESCRIPTIONS

While the industry as a whole is known as “Buy Now, Pay Later,” some companies offer various types of products, not all of which can be accurately bucketed under the “buy now, pay later” category (such as lease-to-own or rental business models, for example).

In these cases, merchants need to clearly differentiate the products on their pages so that consumers understand the type of agreement they are entering into.

#3 - CREDIT

The third most commonly remediated terms discovered during the study were rules associated with “credit.”  The usage of a credit check prior to purchase from these BNPL companies varies, but it’s critical that whatever their credit process is, it’s clearly documented.  Hence why some of the top remediate phrases in this category are “no credit check” and “no credit needed.” 

The other primarily banned rule in this category has to do with the distinction between a BNPL and  credit card purchase. The BNPL industry cannot mislead consumers that this type of purchasing will improve credit scores or act as a credit card if that’s not actually the case. An example of banned terminology in this category includes “credit card” or “build your credit.” 

#2 - DISCLOSURES

The second most remediated category for BNPL lenders is outdated or missing lending disclosures across merchant websites. Specifically, the top flagged disclosures in this category  were for annual percentage rates (APR) and missing issuer information.

Merchants must update available APR associated with the BNPL product that they’re offering and include a disclosure around "based on credit" and/or "subject to approval." Depending on the type of loan, merchants may also be required to disclose which bank is issuing the funds or loans.

#1 - FINANCE/FINANCING

The most commonly remediated terms discovered during the study were rules associated with financing language. Many BNPL companies that focus on leasing products (as opposed to selling) have banned the term “finance” or phrases such as “credit financing” from all materials. As with all leased-to-own products, the consumer is not the owner of the product until the end of the agreement.  So, while many of these companies offer lease or rental agreements, they do not offer financing or loans and require this terminology to be banned from all materials. 

TAKEAWAYS

While formal regulation in the U.S for the Buy Now, Pay Later industry is still looming, this study shows that it’s never too early to implement a monitoring and remediation program for BNPL merchant partners, especially as it pertains to how they’re presenting and marketing purchase agreements and details.   

Astute BNPL organizations are already monitoring their merchant partners and remediating potential issues, especially those under the following categories: instant approval, product descriptions, credit, disclosures, and finance/financing.

As government regulations continue to circulate and the creation of new regulations for this industry seems inevitable, these organizations will be ready to quickly implement additional rulebooks as they pertain to new jurisdictions—protecting not only themselves from future fines and audits, but protecting the consumers they service.