American Banker has reported that beginning in the next few weeks, Equifax will add a business industry code for buy-now-pay-later (BNPL) transactions to allow such transactions to appear on credit reports. It also reported that TransUnion is working on its own BNPL credit reporting service.
The growth in consumer use of BNPL is leading to more scrutiny of the product. Last month, the CFPB sent orders to five companies that offer BNPL products directing them to provide information to the Bureau. The orders were sent just one day after six Democratic Senators sent a letter to Director Chopra expressing concern about potential consumer harm caused by BNPL products. In November 2021, the House Financial Services Committee held a hearing on BNPL and the Federal Reserve Bank of Kansas City issued a research briefing titled “The Appeal and Proliferation of Buy Now, Pay Later: Consumer and Merchant Perspectives.”
It is unclear how the addition of BPNL to credit reports will impact the concerns of regulators. The Bureau first flagged its growing interest in BNPL by publishing a blog post in July 2021 to warn consumers of the risks of BNPL products. In the blog post, the CFPB advised consumers that because most BNPL companies do not currently report to consumer reporting agencies, use of BPNL products will not impact their credit scores. At the same time the Bureau cautioned that a late payment owed to a BNPL company that does report to consumer reporting agencies can harm a consumer’s credit history.
In their letter to Director Chopra, the Democratic Senators indicated that BNPL companies generally do not report on-time payments and are more likely to report defaults, thereby making it difficult for consumers to use BNPL to build positive credit history. The Senators also indicated that even if positive payments were reported, those payments might actually reduce a consumer’s credit score by lowering the average age of their credit accounts.
The plans of Equifax and TransUnion to include BPNL transactions in credit reports could lead to more reporting by BPNL companies. If so, the increased potential for BPNL transactions to negatively impact a consumer’s credit history could result in even greater regulatory scrutiny of BPNL products.