Enhancing Credit Reporting and Extending the Truth in Lending Act to Include Buy Now, Pay Later Loans for the Safety of Consumers and Financial Institutions

Enhancing Credit Reporting and Extending the Truth in Lending Act to Include Buy Now, Pay Later Loans for the Safety of Consumers and Financial Institutions

In 2020, Buy Now, Pay Later (BNPL) loans accounted for around 11 million of the approximately 12 million consumer loans issued in California. As BNPL services gain popularity, concerns about transparency, consumer protection, and responsible lending practices have arisen.

To address these issues, Congress may need to amend the Truth in Lending Act (TILA) and its implementing regulations (Regulation Z) to explicitly include BNPL products within its scope of consumer credit. This would require several key changes:

1. Defining BNPL as Credit Under TILA: By legally classifying BNPL transactions as forms of consumer credit, comparable to credit cards or loans, it would clarify that BNPL providers must comply with TILA’s disclosure and reporting requirements.
2. Mandating Reporting to Credit Bureaus: Requiring BNPL lenders to furnish data on BNPL accounts—including usage, payment histories, and defaults—to the major consumer reporting agencies (Experian, Equifax, TransUnion). This would help address the current "phantom debt" problem where BNPL obligations often do not appear on credit reports, obscuring consumer credit profiles.
3. Requiring Cost of Credit Disclosures: Enforcing BNPL providers to issue clear, upfront cost disclosures akin to credit card statements, including any fees, interest, or penalties, would increase transparency.
4. Including BNPL in Debt-to-Income Calculations: Amending underwriting guidelines so that BNPL debts are factored into lending decisions such as mortgages would prevent underreporting of consumer liabilities.
5. Creating Enforcement Mechanisms: Enabling regulators such as the Consumer Financial Protection Bureau (CFPB) to oversee BNPL compliance, investigate disputes, and impose penalties for violations would ensure adherence to these regulations.

The recent regulatory context includes efforts by the CFPB, which in 2024 issued an interpretive rule classifying BNPL as credit card products under TILA, triggering these requirements. However, in 2025, the CFPB announced plans to rescind this rule and step back from BNPL enforcement, creating a regulatory gap. In response, some states like New York have moved ahead with their own comprehensive BNPL regulations that include licensing, ability-to-repay assessments, disclosures, and data reporting mandates.

HUD is also actively soliciting public input on how BNPL loans affect FHA mortgage underwriting and whether new regulations should require improved debt verification and BNPL reporting practices to protect housing affordability and borrower stability.

In summary, revising TILA to cover BNPL fully and require reporting would address consumer protection gaps due to BNPL’s rapid growth and current lack of transparency in credit reporting. Such revisions would restore federal regulatory oversight after the CFPB’s recent pullback and ensure that consumers are protected from potential drawbacks of BNPL services.

Sources:

• HUD’s Request for Information on BNPL and FHA lending, July 2025 [1], [5]
• Analysis of CFPB regulations and recent withdrawal of BNPL interpretive rule, July 2025 [3], [5]
• State-level regulatory developments for BNPL, including New York’s 2025 BNPL Act [3]
• Consumer reporting gaps and regulatory concerns around BNPL data reporting [1], [4]
• BNPL services are expected to account for 12 percent of all e-commerce payments by 2025.
• Gen Z consumers increased their use of BNPL products from 6 percent in 2019 to 36 percent in 2021.
• A Tik Tok user was surprised to find that her total loan balance for a BNPL service was more than $2,000-she believed it was "maybe $300."
• Global consumers spend approximately $100 billion annually in Buy Now, Pay Later (BNPL) transactions.
• Major regulations aimed at consumer loans often do not cover BNPL services and loans.
• A survey by Credit Karma found that 30 percent of Gen Z consumers who used a BNPL loan missed at least two payments.
• Nearly half of Gen Z consumers have missed at least one payment using a BNPL loan.
• The Consumer Financial Protection Bureau reported 10.5 percent of consumers were charged late fees at least once.
• Consumer protection groups are warning consumers about the potential drawbacks of BNPL services.
• BNPL loans are not covered by TILA, and the missed payment fees, late payment fees, and interest rates can be as high or higher than other consumer loans or credit cards.
• BNPL loan usage is often unreported to consumer credit reporting agencies like TransUnion.
• BNPL providers generally do not report these loans to credit bureaus.
• The Truth in Lending Act (TILA) requires extensive disclosures to consumers about their loans, but it only affects consumer loans split into five or more payments.
• Congress should modernize TILA to reflect pay-in-four, pay-in-three, and even pay-in-two models.
• Congress should require BNPL services to report consumer loans to credit reporting services.
• Consumers are taking on more debt than they can afford with BNPL loans.
• BNPL services offer short-term unsecured loans at the point of purchase, allowing consumers to pay for their purchases in installments.
• BNPL providers approve consumers for these short-term loans at the point-of-purchase using a quick approval process that relies on a "soft pull" of the customer's credit history.
• Without BNPL loan data being reported to credit bureaus, lenders may overextend credit to consumers, increasing the risk of a potential default on debt.

1. To ensure the transparency and protection of consumers in personal-finance and business sectors, Congress should amend the Truth in Lending Act (TILA) and its regulations to include Buy Now, Pay Later (BNPL) products.
2. Regulation Z's disclosure and reporting requirements would apply to BNPL transactions if they were legally classified as credit, enhancing the accuracy of credit reports and guarding against the "phantom debt" problem.
3. Responsible AI in banking and finance could be employed to analyze data from BNPL lenders and assist in enforcing cost disclosures,ability-to-repay assessments, and improved debt verification practices, promoting responsible and sustainable use of BNPL services.

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