LAS VEGAS — One of the characteristics of what makes Buy Now, Pay Later loans such an attractive option for a growing number of consumers is also what makes it a difficult asset class for debt buyers to purchase and sell, a panel of experts shared during a session yesterday at RMA International’s Annual Conference.
Buy Now, Pay Later acts as a cross between layaway and credit, where consumers get to make a number of payments — usually four or less — instead of paying for something in full when it is purchased. Retailers and merchants offer BNPL at the time when a consumer is checking out, and decisions can be made in seconds, but often without a credit check, because the consumer’s Social Security number is not part of the transaction. While that makes Buy Now, Pay Later more attractive to consumers — who don’t have to worry about credit checks or missed payments affecting their credit scores — it also makes verifying the identity of individuals far more difficult for companies that purchase portfolios of delinquent or defaulted BNPL loans, noted Jenn Wilson, the President and Chief Compliance Officer of EverChain.
Not having a Social Security number makes these portfolios “a challenge to figure out how to validate that debt and score it,” Wilson said during the session.
Without a Social Security number, obtaining a propensity to pay score on an account is difficult, if not impossible, Wilson said.
The panel also noted that regulatory scrutiny of Buy Now, Pay Later loans is increasing, especially from the Consumer Financial Protection Bureau, and it is likely that some form of guidance or regulation of the product is on the horizon, said Andrew Duke, the Executive Director of the Online Lenders Alliance.
Buy Now, Pay Later products rose to popularity during a time of low interest rates and low regulatory risk, the panel pointed out. How consumer interest in the product, as well as the performance of the assets, change with rising interest rates and increased scrutiny remains to be seen.
