Buy Now, Pay Later borrowers are more likely to show signs of financial distress compared to non-users, according to a new report from the Consumer Financial Protection Bureau.
The CFPB said in the report that BNPL users are more likely to also be active users of other credit products such as credit cards, personal loans and student loans.
BNPL “borrowers are more likely to be highly indebted or have revolving balances or delinquencies on their credit cards compared to consumers who do not use” the platform, the report said.
“A common misconception of [BNPL] borrowers is that they lack access to other forms of credit,” CFPB Director Rohit Chopra said in the release.
“Our analysis shows that these borrowers are more likely to use other credit products,” Chopra added. “We are working to ensure that borrowers have similar protections and that companies play by similar rules.”
The report found that 17% of consumers with a credit record used a BNPL loan in the year prior to the CFPB’s survey. Nearly 95% of BNPL borrowers have at least one credit record in another account.
About 62% of BNPL borrowers have retail accounts, while roughly a third have personal loans or student loans.
The report found that 18% of Buy Now, Pay Later borrowers had at least one reported delinquency in another account, compared to 7% for non-user. The credit card delinquency rate for BNPL users (9%) was also higher than that for non-users (3%).
Finally, the report found that the average credit score for a BNPL user was in the subprime range of 580-669 versus the near-prime range of 670-739 for non-users.
The CFPB last year determined that BNPL loans are similar to credit cards, signaling that it will enforce terms and disclosures in a way that resembles its oversight of credit cards.