Buy Now/Pay Later (BNPL) transactions seem to be a thing that is catching on. A recent study shows that Millennials and Gen Xers particularly are warming to the use of this approach to finance purchases above $500.
Apparently Apple, Inc. is joining in this space through its Apple Wallet. Surely there is a way for consumer finance companies, working with installment sellers to capitalize on this trend.
Finance companies regularly buy installment sales contracts from credit sellers. There is no reason that, if the price is right, they should not purchase BNPL paper also. In the initial transaction, the credit seller will be responsible for giving the Truth-in-Lending Act (TILA) Disclosures to the purchaser. Even though no finance charge is assessed, if the purchaser has the right to repay the contract in more than four installments, TILA disclosures are required.
So, finance companies must remain vigilant of assignee liability under TILA. Bearing this in mind, there are several considerations:
• Since the “cost of credit” is built into the price of the goods that are the subject of the BNPL transaction, any assignee of a BNPL contract should obtain affirmation from the seller that there is no difference in the “cash price” for a cash transaction and a BNPL transaction. If there is a difference, then the additional cost is a finance charge that must be disclosed to the purchaser.
• A clear explanation of how missed payments will be addressed by the seller or contract assignee must be a part of the contract.
• An explanation of late charges that may be imposed must be disclosed.
• If the contact will transform retroactively into a true indirect sale/finance contract in the event of default in the BNPL terms, an explanation of how and when such will occur should be disclosed.
• A traditional consumer finance company that buys BNPL paper may well have the opportunity to convert the purchasers into borrowers of traditional consumer finance loans.
The CFPB is beginning to take a more in depth look at BNPL transactions. I understand that it will issue guidance or rules focusing on these transactions. Meanwhile, there is certainly opportunity for traditional installment lenders in the BNPL field.
Maurice L. Shevin
Birmingham
