Enhancing Credit Reporting and Extending the Scope of the Truth in Lending Act to Cover Buy Now, Pay Later Loans for the Safeguard of Both Consumers and Lending Institutions
In the rapidly evolving world of e-commerce, Buy Now, Pay Later (BNPL) services have gained significant popularity among consumers, particularly Gen Z. However, concerns about transparency, affordability, and consumer protection have arisen, prompting calls for regulatory reform.
Currently, BNPL services offer short-term unsecured loans at the point of purchase, allowing consumers to pay for their purchases in installments. While this convenience is undeniable, it has led to a growing issue: nearly half of Gen Z consumers have missed at least one payment using a BNPL loan [1].
To address these concerns and bring BNPL services under the umbrella of consumer protection regulations, several key steps can be taken.
Firstly, the Truth in Lending Act (TILA) should be revised to explicitly address BNPL services. This would ensure that BNPL loans fall clearly within the Act’s regulatory scope, similar to credit cards or installment loans [2]. This change would allow for cost-of-credit disclosures, billing statements, and dispute investigations under Regulation Z [1][2].
Secondly, BNPL lenders should be mandated to report repayment history and defaults to consumer credit reporting agencies. Currently, BNPL providers generally do not report to credit bureaus, limiting consumers’ credit profiles and affecting creditworthiness assessments [4]. Including BNPL data would improve transparency and help credit risk evaluation.
Thirdly, BNPL-specific disclosures consistent with TILA’s purpose of consumer protection should be required. This includes clear terms on fees, interest rates (if any), and affordability assessments to prevent predatory lending [1].
Fourthly, affordability assessment requirements under TILA for BNPL loans should be incorporated. This ensures lenders verify the consumer’s ability to repay before issuing credit, aligning with consumer protection goals already present in other credit regulations [1][3].
Lastly, a federal regulatory framework with oversight authority should be established, ensuring nationwide consistency and enforcement. The Consumer Financial Protection Bureau had started defining BNPL under Regulation Z but withdrew the interpretive rule in 2025, leaving a regulatory gap partially addressed by state laws [1][2].
By modernizing TILA to reflect pay-in-four, pay-in-three, and even pay-in-two models, Congress can create a comprehensive regulatory framework integrating BNPL loans into consumer credit reporting and lending law. This would improve transparency, disclosure, and protection while fostering responsible lending practices consistent with TILA’s original goals.
Industry researchers have found that Gen Z consumers increased their use of BNPL products from 6 percent in 2019 to 36 percent in 2021 [5]. As BNPL services are expected to account for 12 percent of all e-commerce payments by 2025 [6], it is crucial to address these issues promptly.
Consumers are urged to be mindful of their debt levels when using BNPL services and to seek out clear, transparent information about the terms of their loans. Consumer protection groups are warning consumers about the potential drawbacks of BNPL services, and campaigns to educate consumers on BNPL services are being launched, such as the one by the Washington state Better Business Bureau [7].
In conclusion, modernizing TILA to address BNPL services is a necessary step towards ensuring consumer protection in the digital age. By improving information on both sides of the loan, we can reduce risky BNPL supply and demand, protect consumers, and promote responsible lending practices.
AI can play a significant role in researching and analyzing data related to BNPL services, helping to understand their impact on personal-finance and business. For instance, AI models can be used to predict consumer's ability to repay BNPL loans based on their financial history, which could aid lenders in making more informed decisions.
Finance and business sectors should collaborate with regulatory bodies to create a unified approach towards BNPL regulations. This partnership would ensure that the newly implemented regulations are not only effective but also adaptable to the ever-evolving BNPL landscape.
Enhanced transparency through comprehensive data reporting and clear disclosures would empower consumers to make informed decisions regarding their use of BNPL services, ultimately promoting responsible financial behaviors.
