For years, Klarna has been calling for proportionate regulation of Buy Now, Pay Later (BNPL) across many of our major markets. Many times, we have seen regulators attempt to fit BNPL into a credit card framework, only to reevaluate the risk BNPL poses to consumers and instead call for bespoke regulations. 

In the US, credit cards are king, so lawmakers and regulators can be quick to reference credit card regulations when discussing BNPL. But let’s get a few things straight about Klarna’s BNPL vs. Credit Cards: 

• Klarna BNPL = Zero interest. Credit Cards = revolving interest
• Klarna BNPL = $150 outstanding balance. Credit Cards = $5,947 average balance in the US
• Klarna BNPL = pauses consumer accounts upon delinquency. Credit Cards = encourage overspending! 

These two things are not equal. To ensure consumers are protected and are able to continue to use the clear, transparent product that more and more Americans are choosing at checkout, let’s set some proportionate rules! 

Unfortunately, not all BNPL products in the US are the same. Some charge interest and some continue to give credit to consumers who they know will not be able to pay. Therefore, we encourage the CFPB to use one of its existing tools and undergo a transparent rulemaking to better understand the industry, set uniform standards, and allow the American people to weigh in. It is essential that the public have a say in the products that impact their financial wellbeing. 

On the regulation front, we know many businesses have called for regulation of their respective industries, but Klarna has done the hard work of laying out the specifics, including consumer protections that cannot be ignored. We believe that all BNPL transactions not currently regulated by Reg Z should come under the umbrella of new and proportionate regulation. 

Let’s look at the specifics: 

Defining BNPL

BNPL is a short-term credit product with no interest where the purchase price is repaid within four installments or fewer, excluding downpayment. 

Terms and Conditions

Ensure terms and conditions are fair, clear, understandable, and written in plain language. This includes ensuring that any information provided to consumers is not presented in a manner that is likely to be misleading, deceptive, or confusing. Make sure that customers are notified of any material changes to terms and conditions on a go-forward basis.

Repayment and Fee Disclosures 

The BNPL provider must disclose the following information in a clear manner before the customer completes the transaction:

• Total cost of purchase
• Amount of each payment
• Number of weeks until each payment is due
• Any potential fees 

Fees

Late fees should be clearly defined as “late fees,” with proper notice given to consumers before the late fees are applied. Late fees should also be reasonable and proportionate to the amount charged.  

Financial Hardship
Recognizing economic challenges arise, hardship policies should be available and accessible, and information on how and when they apply should be clearly explained. Hardship exemptions may include negotiating a new repayment arrangement, discontinuing normal collection activity, and freezing late fees. 

Loan Stacking/Re-Acceptance Policy

BNPL providers should not provide any new BNPL services to consumers who have an existing delinquent payment. BNPL providers should have a re-acceptance policy where the provider will impose additional acceptance conditions on a consumer if the relevant consumer is and/or has been in arrears with respect to one or more previously purchased BNPL service with that provider.   

Debt Collection/Securitization 

The transfer of an outstanding claim by the BNPL provider against a consumer under a BNPL service to a third party / collection agency should be clearly explained in Terms and Conditions and should only be used in extreme circumstances.

Uniform Dispute Resolution

Providers must have a complaints procedure for consumers to easily submit complaints about BNPL services. Providers should handle complaints promptly and appropriately, and send the consumer a written acknowledgement of their complaint in a timely manner.

Dynamic Underwriting

To prevent irresponsible BNPL lending, BNPL providers should establish proper risk analyses and underwriting policies as the basis for assessing a consumer's BNPL application. Providers should use real-time risk assessment methods, including bureau data, purchase and repayment history, and overall indebtedness. The provider's risk analyses and underwriting policies should consider factors such as the order value and risk weight of the purchased goods. The provider should continuously monitor and adjust these policies as needed, with a focus on the percentage of BNPL services that are not repaid or are not repaid on time (default rate).

Credit Reporting Innovation
We are calling for the Credit Reporting Agencies (CRAs) to accelerate their development efforts to facilitate more timely and complete credit information sharing across all credit products, with the credit scoring systems enhanced to accurately score for the short term nature of BNPL products. This reform should happen in parallel to wider adoption of new sources of data facilitated by innovations such as open banking. 

Consumer Fraud Protection

BNPL providers are already subject to fraud protections under the Fair Credit Reporting Act and the Electronic Funds Transfers Act, and should abide by those existing regimes.

Data security and protection

BNPL providers will not transfer financial data in exchange for cash. BNPL providers must be transparent about any data that is collected and used. Consumers should be given the right to opt out of the sale of personal data, as well as the right to be data forgotten.

PII Data Monetization

We define “data monetization” to mean the sale of data collected by Klarna under its function as a BNPL provider to third parties to use for their own purposes where Klarna receives monetary compensation. 

BNPL providers are already subject to GLBA and additional state law regulations with respect to the use and sharing of data. GLBA and state privacy laws place major restrictions on an organization's ability to share data with third parties. Any policy regarding BNPL should therefore be consistent with existing privacy laws, and ensure that BNPL providers should similarly be prohibited from data sharing in a manner that is inconsistent with GLBA or existing data privacy rules. However, BNPL providers should not be restricted from using this data within their own ecosystem as other financial institutions are allowed to do. 

Data Harvesting

BNPL providers are already subject to the GLBA and should abide by the existing notice regime.
 

As more and more Americans turn to BNPL for low-cost, interest-free credit, it is essential that rules and regulations specifically governing BNPL exist. Instead of trying to jam BNPL into an outdated credit card framework that does little to actually protect consumers, leaders in Washington should draft and implement a framework for BNPL that is proportionate to the risk it poses to consumers. 

We look forward to continuing to work with regulators and elected officials to make this framework a reality.