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The Office of the Comptroller of the Currency (OCC) recently issued guidance for the banks in the United States, warning them about offering buy now, pay later (BNPL) loans. According to the OCC, the banks must ensure that the loans are offered in a “safe and sound manner.”
Banks are trying to catch up to competitors
With the BNPL seeing a massive rise in demand, banks have started offering various services related to this trend in modern-day banking. However, the OCC believes that they have not yet mastered this form of offering.
In its official guidance, the OCC stated that national banks and federal savings associates need to maintain underwriting, repayment terms, safeguards, and pricing. This should serve to minimize adverse customer outcomes, according to the Office of the Comptroller.
Furthermore, the guidance also instructs that marketing materials and disclosures connected to BNPL lending need to be transparent, clear, and conspicuous.
While the use of BNPL has seen a significant increase in recent years, it has seen a true explosion after the likes of Affirm and Klarna managed to attract millions of new customers interested in it. The rapid surge in interest caused traditional lenders to enter the BNPL arena as well, or risk losing customers to more modern competitors.
The importance of BNPL guidance during the holidays
However, while BNPL has certainly come with a number of advantages, it also raised certain concerns. One of the top ones is that the industry is piling up debt among cash-strapped consumers, especially in the wake of the approaching holiday season.
Commenting on the matter regarding BNPL loans, the acting Comptroller of the Currency Hsu acknowledged that the buy-now-pay-later market is seeing a sharp rise. Given the time of the year, the holiday shopping season is just around the corner, so greater number of BNPL loans is expected, as the customers rush to get the easy cash in order to purchase presents.
This is why the guidance is extremely important, and it came at just the right time. The Comptroller added that the guidance is there to confirm the expectation that OCC-supervised institutions offering BNPL products do so in a responsible manner.
“Methods to collect BNPL debt, mitigate losses, and contact borrowers may warrant specialized approaches and strategies that differ from traditional consumer debt collection practices. For example, the timing of contacting delinquent BNPL borrowers would ordinarily be shorter than with longer-term loans,” the OCC noted.
