America’s Credit Unions and the Mortgage Bankers Association (MBA) asked the government for more regulation to protect them from consumers who might have piled up hidden debt through Buy Now, Pay Later (BNPL) programs.
AmCU and the MBA sent letters Monday to federal housing agencies in response to their requests for information about BNPL programs.
Tyler J. Maron, AmCU’s regulatory affairs counsel, wrote a four-page letter asking the Department of Housing and Urban Development to compel BNPL providers to share their data with credit bureaus and include the information in Federal Housing Administration (FHA) underwriting standards.
Also, he said borrowers should be required to provide that information on their loan applications “to ensure lenders and underwriters have a complete picture of a borrower’s financial profile. By placing the obligation on borrowers to report their own BNPL history, it would save credit unions the administrative burden of relying on manual reviews of bank statements.”
The MBA’s six-page letter asked that FHA “adopt interim underwriting guidance that provides lenders with clear direction while the broader policy and credit reporting infrastructure continue to evolve.”
The MBA also asked FHA to establish a definition of BNPL obligations. It suggested: “Short-term, discrete point-of-sale installment credit arrangements that are interest-free, repayable in a fixed number of payments over a defined period and offered by third-party providers or integrated into online or in-store checkout systems.”
AmCU said FHA now does not consider BNPL loans because of their short duration — usually 10 months or less.
AmCU said credit unions are concerned about members’ use of unreported BNPL loans “because it creates ‘invisible’ debt, preventing underwriters from having a complete picture of a borrower’s obligations.”
“In mortgage lending, this hidden liability can lead to inaccurate debt-to-income (DTI) calculations, overstated creditworthiness and higher default risk, particularly in rising interest rate or economic downturn scenarios,” Maron wrote. “For FHA-backed mortgages, the risk is compounded because the program targets borrowers with lower credit scores and smaller down payments, meaning even modest unreported debt can significantly affect repayment capacity. “
AmCU cited a study the CFPB released Jan. 17 that found 21% of consumers with a credit record used BNPL loans in 2022, up from 18% in 2021.
But AmCU said it is more worried about the credit burdens of BNPL borrowers. BNPL consumers are also more likely to hold higher balances on other types of unsecured consumer credit, such as personal loans, retail loans, student loans and credit cards. The CFPB said 20% of these users were “heavy users” in 2022, meaning they originated more than one BNPL loan on average each month.
Most concerning, however, is that many BNPL consumers participated in “loan stacking,” where borrowers accrued multiple, active BNPL loans. The CFPB found 63% of BNPL borrowers had simultaneous loans at some point in 2021 and 2022.
“The sum of these statistics shows many BNPL consumers are vulnerable to accelerated debts that are easy to accumulate,” Maron wrote. “BNPL loans without any safeguards place consumers at risk with automatic withdrawals to repay loans that could yield unanticipated negative checking account balances, overdraft fees, unpaid bills and invoices, and repossessions.”
Contact Jim DuPlessis at JDuPlessis@cutimes.com.
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