Women in Consumer Finance Announces Inspiring Keynote Speaker Anu Shultes

POTOMAC, Md. – Anu Shultes will take the stage
on the first day of the 5th annual Women
in Consumer Finance
, a unique professional development for women,
December 5-7, 2022 in Palm Springs, California.

Women
in Consumer Finance is a one-of-a-kind conference where we help women lead
inspired careers, creating value for themselves and for their employers.

We place a particular focus on what’s needed
to get more women – particularly women of color – to the decision-making tables
where products are designed and policy is set. The
event is designed to address several key issues:

  • There is a connection problem. Women of
    all colors simply haven’t had the same opportunities as men to build their
    network, which is how most senior and board positions are filled.
  • There is a confidence problem. Many women
    are hesitant to assert themselves in a leadership structure dominated by men.
  • There is a career example problem. Most
    women lack exposure to female mentors and leadership examples, particularly
    ones of color.

Our predominantly workshop-style content is
designed to build confidence. Our unique small group-based structure
helps to ensure everyone leaves with meaningful new connections, and our
mainstage storytellers provide inspiring yet relatable career examples.

Keynote
speaker Anu Shultes is an entrepreneur and prestigious Forbes 50 Over 50 honoree
for her commitment to and progress towards financial inclusion.

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She is a 30-year veteran of the Financial
Services industry with senior leadership roles at Providian, National City,
AccountNow, Blackhawk Network and more. Her significant experience in building
efficient operational processes and teams to support them has led her to become
one of the few female CEOs in Fintech.

Shultes is currently the CEO of Ahead
Financials, a visionary fintech company at the forefront of defining financial
equity, inclusion and service for the world’s emerging middle class. Ahead’s
mission is personal for Anu as she has experienced the very financial
challenges she seeks to solve for her company’s clients. As an immigrant to the
U.S. from India, Anu remembers living paycheck to paycheck as a graduate
student, and even struggling to find her first job. She also is a cancer
survivor and went through treatments while raising three children and working
full-time.

Shultes’
keynote is sponsored by Provana, the Women in Consumer Finance ‘Education = Confidence’
sponsor.

Provana interaction management and compliance
solutions are the first of their kind, providing effortless control over
process-intensive operations. Available for consumer lending, legal, ARM,
insurance and other industries that handle heavily regulated consumer
interactions. Provana technology is based on a decade of business process
management, AI, RPA, regulatory compliance and secure data operation
experience. Solutions include speech analytics, a compliance suite, omnichannel
payments, and business analytics, comprising a one stop digital transformation
platform for small and medium enterprises.

“We shape and evolve our technology solutions
and managed services based on the needs we see foremost among our clients,”
said Karen Powell, Co-Founder and COO of Provana. “We are excited to partner
with Women in Consumer Finance to help promote the many women leaders inside
Provana and in the finance industry at large.” 

Women
in Consumer Finance is for women at all levels in the context of a common
industry.

If you work in any role at a lender, creditor,
servicer, law firm, technology or service provider, or regulator, this event is
for you. We provide inspiration, a guiding hand, and a support system women can
leverage to continuously recharge their careers and deliver value to their
employers. WCF is not about compliance, best practices, or even finance. It’s
about women, our common professional challenges, and how to tell our own career
story – no matter where we are on our professional journey. We take a unique
approach to building confidence, connection, and careers. There is nothing else
like it.

Learn more or register at www.WomenInConsumerFinance.com

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California Updates Debt Collectors on Processing Delays

On May 23, California’s Department of Financial Protection and Innovation (DFPI or Department) sent an email notifying license applicants and prospective license applicants that the issuance of licenses under the Debt Collection Licensing Act is unavoidably delayed at this time.

The original deadline for applicants was December 31, 2021; however, that deadline was extended to March 15 in mid-December. Two months later, and the Department still finds itself unable to process new applications.

The Federal Bureau of Investigation (FBI) has informed the DFPI that new changes are needed to state agency protocols — specifically fingerprinting — for requesting federal background checks. According to the Department, the delay was unforeseen, but is necessary to enable the DFPI to fully implement the licensing background check required under the Debt Collection Licensing Act.

The delay does not necessarily affect debt collectors doing business in the state. Per the DFPI, applicants may continue to engage in business, and the Department will not take action for unlicensed activity against applicants who filed their applications after December 31, 2021. For purposes of including California debt collector license numbers when contacting or communicating with debtors as required under Civil Code Section 1788.11, an applicant who has filed its application through NMLS may indicate “license number pending” or similar verbiage until a license is issued.

The DFPI previously has stated that persons who file an application by March 15 would be deemed temporarily in compliance with California’s licensing requirement, pending the approval of the license application. That deadline was not impacted by this new statement. In other words, while the DFPI is not yet issuing licenses, it is taking the position that only collectors who have applied for licensure are authorized to collect in California.

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Eighth Circuit Finds that Class-Action FCRA Plaintiff Lacks Article III Standing Under Spokeo

The Eighth Circuit reiterated in a decision last month that trial courts must distinguish between FCRA plaintiffs who have suffered concrete harm and plaintiffs who merely seek to collect statutorily allowed damages as a way to ensure compliance with the law.  Under the Supreme Court’s decision in Spokeo, the former have Article III standing to assert FCRA claims but the latter do not.

In Schumacher v. SC Data Center, Inc., plaintiff Ria Schumacher sought a job with defendant SC Data.  During the application process, Schumacher responded “no” to a question asking whether she had ever been convicted of a felony.  SC Data offered a position to Schumacher and then obtained her authorization to allow a third party to independently investigate her criminal records.  SC Data later rescinded its offer to Schumacher when the report that it obtained revealed Schumacher’s 1996 felony conviction.

Schumacher alleged three FCRA violations on behalf of herself and a class: (1) taking an adverse employment action based on a consumer report without first providing the report to the applicant; (2) obtaining a consumer report without providing an FCRA-compliant disclosure form; and (3) obtaining more information about an applicant than allowed by the authorization.  Four days after the Supreme Court’s decision in Spokeo, SC Data moved to dismiss Schumacher’s claims for lack of standing.  The trial court found that Schumacher had standing to pursue all three claims, but the Eighth Circuit reversed.

The Eighth Circuit began with Schumacher’s adverse action claim.  The FCRA provides that before an employer takes an adverse action against a consumer based on a consumer report, the employer must provide a copy of the report to the consumer. 15 U.S.C. § 1681b(b)(3)(A).  The Court concluded that SC Data violated the FCRA when it did not provide a copy of the report to Schumacher before rescinding her job offer.  Still, the Court noted the split in authority regarding whether an employer’s failure to provide a pre-action report is a bare procedural violation or conduct that causes an intangible harm sufficient to confer standing. 

Those courts that have found standing, the Court explained, did so on the premise that an employee has a right to discuss with an employer the information in a report prior to any adverse action.  However, the Eighth Circuit agreed with the Ninth Circuit that no such right is found in the FCRA’s text or supported by its legislative history.  Instead, the FCRA was intended to protect against the dissemination of inaccurate information.  Schumacher did not claim that the information contained in the report was inaccurate, so her adverse action claim was not redressable under the FCRA.

The Court turned next to Schumacher’s improper disclosure claim.  When an employer obtains a consumer report for employment purposes, the FCRA requires the employer to provide the applicant with a “clear and conspicuous” written disclosure “in a document that consists solely of the disclosure.” 15 U.S.C. § 1681b(b)(2)(A)(i).  Schumacher pointed to several purported statutory defects in SC Data’s disclosure form, including the size of the disclosure’s font.  However, the Court held that a technical violation of the disclosure provision, without “something more,” is insufficient to confer standing.  Schumacher did not point to any tangible or intangible harm that flowed from the purported technical violations, such as confusion about the consent being given.  Thus, she lacked standing to pursue this claim, too.

Finally, the Court turned to Schumacher’s failure-to-authorize claim.  The FCRA forbids an employer from obtaining a consumer report without the employee’s written authorization. 15 U.S.C. § 1681b(b)(2)(A)(ii).  However, Schumacher indisputably authorized SC Data to obtain a type of consumer report documenting her criminal history.  The Court found that the report at issue fit within these parameters.  To the extent the report exceeded Schumacher’s authorization, Schumacher failed to plead any facts demonstrating a concrete harm.  Thus, regardless of whether the report contained noncriminal information, Schumacher lacked Article III standing.

Because Schumacher lacked standing to assert any of her claims, the Court vacated the trial court’s orders and remanded the case with instructions to return the case to the state court.

The post-Spokeo landscape is still very much in development.  Schumacher provides a reminder that employers who find themselves defending against FCRA claims should closely scrutinize whether plaintiffs have alleged mere procedural violations or the kind of concrete harm sufficient to open the doors to the federal courthouse.

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Provana Partners with The iA Institute to Address Needs of Credit & Collections Industry

WASHINGTON, DC — The iA Institute, publisher of insideARM, the premier publication for the credit & collections industry, and Provana, provider of the industry’s first unified platform for compliance and performance management, today announced a broad partnership to enhance the support both firms deliver to industry participants. As part of the partnership, Provana is making significant investments into iA Institute programs, including Research Assistant, Innovation Council, Consumer Relations Consortium, and Women in Consumer Finance, with a goal of bringing additional value to its members and expanding the membership.

“Provana is a predominant industry player in credit and collections when it comes to its breadth and depth of products and global delivery model for businesses operating in these markets,” said Stephanie Eidelman, CEO of The iA Institute. “We are pleased to collaborate with the Provana team to extend the charter of our programs and better serve industry players.”

“The iA Institute is a leading voice in the consumer finance market, especially pertaining to the regulatory hurdles of the full debt lifecycle,” said Sandeep Bhargava, CEO of Provana. “This partnership reinforces our mission to become a one-stop compliance and performance solution, providing digital capabilities, global delivery and thought leadership that raises the bar of competition in a way that benefits consumer finance industry participants.”

There are a number of ways The iA Institute and Provana plan to create value for the industry. One way in particular is through the Research Assistant program, which provides a forum for compliance practitioners to solve challenges together as a peer group. The group not only includes practical compliance tools and regular analysis, but it also develops meaningful peer-built content based on tangible experience, which Provana will make available to subscribers though its own compliance management platform. 

“We look forward to taking an active part in the forums managed by The iA Institute,” said Britney Schaeffer, Director of Content Programs at Provana. “Provana has a rich heritage of thought leadership in solving compliance and performance issues for credit & collections businesses. We believe we can bring valuable new thinking to the Innovation Council and to compliance-related discussions.”

“With Provana’s knowledgebase of industry processes and data, we anticipate Provana’s contribution in our Research Assistant program to help our subscribers a great deal,” said Aaron Steinberg, Chief Growth Officer of The iA Institute. “Provana brings a passion for leadership that puts women at the decision-making table, which means they will also have a lot to contribute in the Women in Consumer Finance forum.” 

Overall, the goal of the partnership is not only to create value for current iA Institute and Provana subscribers, but to deliver that same value to a broader base of industry constituents, including banks, fintechs, specialty finance players, and other enterprises that provide financing of their products and services to consumers. Many longtime industry participants have expressed positive sentiment about the partnership and its long-term implications for the consumer finance industry. 

“I have worked productively with both organizations for multiple years,” said Marian Sangalang, Vice President at The Bureaus, Inc. “With the changes in the regulatory and economic environment around our industry, I can think of no better time for these key players in our space to take their collaboration to the next level.”

“The consumer finance industry is long overdue for a partnership of this nature,” said LaDonna Bohling, Chief Compliance Officer at Contract Callers, Inc.. “The lines between traditional creditors, their collections networks, and new tech-first creditors are blurring in the eyes of industry regulators. A thoughtful collaboration between two leading content and tech providers will help our industry raise the game for everyone involved.”

About The iA Institute

The iA Institute is a media company that specializes in providing context, insight, and practical information to the complex debt industry. With its long history as an innovator, the company has grown from its inception as a publisher of a daily newsletter to one that influences the industry at the highest level. Our initiatives bring a range of stakeholders to the table in a candid environment to inform, to build a culture of compliance, to address industry challenges, and to make profitable connections. Our initiatives cover three areas: Legal & Compliance, Strategy & Tech, and Women & Diversity. Learn more at www.theiAinstitute.com.

About Provana

Provana’s interaction management and compliance solutions are the first of their kind, providing effortless control over process-intensive operations. Available for consumer lending, legal, ARM, insurance and other industries that handle heavily regulated consumer interactions. Provana technology is based on over a decade of business process management, AI, RPA, regulatory compliance and secure data operation experience. Solutions include speech analytics, a compliance suite, omnichannel payments, legal tech, and business analytics, comprising a one stop digital transformation platform for small and medium enterprises. Provana is backed by a NYC-based Fintech PE, with a presence across the US and in India. Learn more at www.provana.com.

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CFPB Focuses on Innovation; Creates New Office and Hints at Future Rulemaking

On May 24, 2022, the Consumer Financial Protection Bureau announced that it is opening a new office called the Office of Competition and Innovation in order to spur innovation in financial services through competition. This new office will replace the Office of Innovation which primarily processed company and product-specific applications for No-Action Letters and Sandboxes.

The CFPB believes that the creation of this new Office will help it fulfill its statutory mandate to promote fair transparent and competitive markets. Its goal is to create market conditions where consumers have choices, the best products win, and large incumbents cannot stifle competition. In order to achieve this objective, the Office of Competition and Innovation will do the following:

  • Explore ways to reduce barriers to switching accounts and providers, to give consumers the ability to switch providers easily.
  • Look at market structure problems that create obstacles to innovation, for example taking a look at payment networks and credit reporting systems which have only a few dominant players.
  • Understand how bigger players gain an advantage over smaller players by stymying players that may have products more favorable to consumers. 
  • Identify commonplace practical problems which may prohibit innovators from getting their products to market, like access to capital and talent. 
  • Host events where entrepreneurs, small business owners, and technology professionals will be able to collaborate, explore obstacles, and share frustrations with government regulators 

Within the announcement, the CFPB also noted there will be a future rulemaking aimed at giving consumers access to their own data. 

See the complete announcement here

insideARM Perspective:

It’s interesting that the CFPB professes to be interested in innovation geared at promoting fair and competitive markets, while simultaneously ensuring debt collectors are stuck in 1977, the year the Fair Debt Collection Practices Act (FDCPA) became the law of the land.

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Words are great; initiatives and announcements look good on paper, but what is the CFPB doing about current barriers to using 21st-century technologies? Where debt collectors are concerned, it appears the answer is nothing. The CFPB will do nothing. 

Take, for example, the fallout from the Hunstein decision. It has been thirteen very long months since the 11th Circuit Court of Appeals issued its catastrophic opinion which basically outlawed the use of letter vendors simply because in 1977 those that enacted the FDCPA could not envision this future technology. In order to avoid copycat suits, which cost both time and money, debt collectors have been forced to forgo using modern letter production technology (and the consumer protections that come with it). Though the CFPB has acknowledged and accepted the usage of letter vendors in the past, and even referenced usage of letter vendors within Regulation F, they have chosen to remain silent on the issue, ensuring debt collectors are stuck in 1977. 

As another example, while Reg F does create some safe harbors for debt collectors to contact consumers through the channels in which they would like to be contacted (primarily email and cell phone), the number of hoops created by Reg F still essentially requires debt collectors to get on the phone with consumers to gain permission to use modern channels of communication. When a debt collector gets a consumer on the phone (a rarity!) in order to follow the 1977 FDCPA, the steps a debt collector must take to verify the person’s identity mirror the same methods used by 2022 scammers to steal identities. The net result is a “who’s on first” scenario, where debt collectors can’t communicate effectively with consumers and consumers are not able to learn about their options to resolve past due accounts. 

Within the May 24th announcement, Director Chopra said this: “Competition is one of the best forms of motivation. It can help companies innovate and make their products better, and their customers happier. We will be looking at ways to clear obstacles and pave the path to help people have more options and more easily make choices that are best for their needs.” [emphasis added]

Well, Director Chopra, debt collectors (and the consumers they service) would very much like to use technology created after 1977. We are eager for you to clear these obstacles and waiting for the CFPB’s actions to match these words. 

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CFPB Launches New System to Promote Consistency Among Enforcers

On May 16, the Consumer Financial Protection Bureau (CFPB or Bureau) announced that it will launch a new initiative to provide guidance to other agencies with consumer financial protection responsibilities on how the CFPB intends to enforce “Federal consumer financial law.” 12 U.S.C § 5481(14).

The CFPB will use Consumer Financial Protection Circulars, described as “general statements of policy,” under the Administrative Procedure Act. These circulars will provide background information about applicable law; articulate considerations relevant to the CFPB’s exercise of its authorities; and, in the interest of maintaining consistency, advise other parties with authority to enforce “Federal consumer financial law.” Circulars will be released publicly.

The CFPB’s first-issued circular, “Deceptive representations involving the FDIC’s name or logo or deposit insurance,” appears in the form of a Q&A. The question: When do representations involving the name or logo of the Federal Deposit Insurance Corporation (FDIC) or about deposit insurance constitute a deceptive act or practice in violation of the Consumer Financial Protection Act (CFPA)? The CFPB then follows with its answer: “Covered persons or service providers,” the Bureau writes, “likely violate the CFPA’s prohibition on deception” by misusing the name or logo of the FDIC by engaging in false advertising or making misrepresentations to consumers about deposit insurance, regardless of whether such conduct (including the misrepresentation of insured status) is engaged in knowingly. In addition to its answer, the CFPB also provides a section on analysis with footnotes.

Whether this Q&A format will continue for all future circulars is yet to be seen.

The federal banking regulators often issue joint statements and guidance (e.g., November 10, 2021 “Joint Statement on Supervisory and Enforcement Practices Regarding the Mortgage Servicing Rules in Response to the Continuing COVID-19 Pandemic and CARES Act”). The CFPB initiative and its first circular, however, indicate the CFPB is willing to act on its own by sharing its views with its sister agencies without coordinating with them beforehand.

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NCLC Tells FCC “Callers Can Easily Avoid Making Calls to Telephone Numbers That Have Been Reassigned….”–But is it That Simple?

In response to the Department of Health and Human Services’ (HHS) recent letter to the FCC seeking clarity on whether the TCPA applies to texts it would like to make to alert Americans of certain medical benefits, the National Consumer Law Center (NCLC)–an organization that nominally represents consumers, but really seems to represent the interests of the plaintiff’s bar–has filed a comment.

Unsurprisingly, the NCLC takes the position that HHS needs no relief. Government contractors are covered by the TCPA–it says–but the texts at issue in HHS’ letter are consented to, so they’re fine. (Although it later clarifies that only “many” but not “all” of the enrollees whom HHS wishes to call have “probably” given their telephone numbers as part of written enrollment agreements–so perhaps not.)

Hmmmm. Feels like a trap. But we’ll ignore that for now.

The critical piece here though is what the NCLC–very powerful voice, for better or (often) worse–is telling the FCC about the effectiveness of the new Reassigned Number Database:

3. Callers can easily avoid making calls to telephone numbers that have been reassigned to someone other than the enrollee

A primary source of TCPA litigation risk has been calls inadvertently made to numbers that are no longer assigned to the person who provided consent. Courts have held the caller liable for making automated calls to a cell phone number that has been reassigned to someone other than the person who provided consent to be called.29

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The Commission has implemented the Reassigned Number Database specifically to address that risk of liability, as well as to limit the number of unwanted robocalls:

The FCC’s Reassigned Numbers Database (RND) is designed to prevent a consumer from getting unwanted calls intended for someone who previously held their phone number. Callers can use the database to determine whether a telephone number may have been reassigned so they can avoid calling consumers who do not want to receive the calls. Callers that use the database can also reduce their potential Telephone Consumer Protection Act (TCPA) liability by avoiding inadvertent calls to consumers who have not given consent for the call.31

The database has been fully operational since November 1, 2021. It provides a means for callers to find out before making a call if the phone number has been reassigned. If the database wrongly indicates that the number has not been reassigned, so long as the caller has used the database correctly, no TCPA liability will apply for reaching the wrong party. 32 Thus, as long as HHS’s callers make use of this simple, readily available database, they can be confident that they will not be held liable for making calls to reassigned numbers.

While I steadfastly support both the creation and use of the RND, it also must be observed that there are myriad problems with the RND as it currently exists. Most importantly, the data sets in the RND are only comprehensive through October 1, 2021 and spotty back to February, 2021 (beyond which there are no records!)

So for folks like HHS–and servicers of mortgages, and retailers, and credit card companies–who want to reach customers who provided their contact information before 10/2021 or 2/2021 the RND is simply not helpful.

The NCLC’s over simplification of a critical issue is not surprising. They once told Congress that the TCPA is “Straightforward and Clear” after all.

Full comment here: NCLC Comments-c3

We’ll keep an eye on developments on HHS’ letter and all the FCC goings ons

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Senate Banking Subcommittee Holds Hearing on Overdraft Fees and Their Effects on Working Families

On May 4, 2022, the Senate Banking Committee’s Subcommittee on Financial Institutions and Consumer Protection held a hearing entitled “Examining Overdraft Fees and Their Effects on Working Families.”  A recording of the hearing is available here

After opening statements from Subcommittee Chairman Raphael Warnock (D-GA) and Ranking Member Thom Tillis (R-NC), three witnesses offered testimony and responded to questions from the Subcommittee members.  The following witnesses appeared at the hearing:

  • Aaron Klein, Senior Fellow in Economic Studies, Brookings Institution 
  • Jason Wilk, Founder & Chief Executive Officer, Dave
  • David Pommerehn, Senior Vice President and General Counsel, Consumer Bankers Association

Chairman Warnock kicked off the hearing by stating that onerous and opaque overdraft fees keep people in cycles of debt and poverty, and disproportionately impact people of color.  He observed that many banks have moved to eliminate overdraft fees, and applauded those banks for making the right choice to benefit these communities.  In his opening remarks, Ranking Member Tillis recognized the tremendous consumer choice available today as the financial services industry has developed new products.  Responding to Warnock, Tillis stated that the industry has already adopted consumer-friendly overdraft products and practices through competition and innovation and regulation is not needed.  In a nod to the recent CFPB Request for Information Regarding Fees Imposed by Providers of Consumer Financial Products or Services, Tillis concluded that overdraft fees should not be characterized as “junk fees.”

The testimony discussed the volume of overdraft fees charged – up to $30 billion a year according to Aaron Klein from Brookings — as well as the concentration of the impact on the most economically vulnerable individuals.  Chairman Warnock and Senator Warren both cited a CFPB study that found 80% of overdraft fees were charged to 9% of consumers.  However, it was noted throughout the hearing that overdraft fee revenue has been on the decline, in many instances due to voluntary actions within the financial services industry, including eliminating overdraft charges by many banks. 

Aaron Klein testified that banks have already made sweeping changes to their products without regulation or legislation that will substantially reduce usage of overdrafts and overall costs for consumers, quantifying the impact of those voluntary changes at $5 billion a year.  David Pommerehn from the Consumer Bankers Association noted that overdraft products are based on necessity, due to limited small dollar loan options, and provide one of the last viable sources of short term liquidity for many consumers, also highlighting the choice and transparency already surrounding the product based on the requirement to opt-in.  Highlighting some of the innovation in the space, Jason Wilk discussed the products his company, Dave, offers to assist consumers in its mission to “disrupt overdraft,” including linking with their bank accounts to help customers have better visibility into upcoming bills that may lead to an overdraft.

While everyone acknowledged actions taken within the industry to address concerns about overdraft, the witnesses proposed additional policy changes.  Klein highlighted five recommendations, including (1) revising safety and soundness rules to target a small number of banks that make a totality of their profits off of overdraft fees, (2) making credit unions disclose their overdraft data like banks do, (3) having the Fed use its regulatory authority under the Expedited Funds Availability Act to implement real-time payments to address the slow payment system, thereby decreasing the reliance on payday lenders, (4) new regulation to prohibit banks from posting debits before credits and reordering payment flows from largest to smallest when processing transactions, and (5) universal Bank-On-style accounts (no overdraft, low-cost, basic accounts).  Pommerehn advocated for more short term liquidity products, and encouraging policymakers to explore alternatives, including small dollar lending. 

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BNPL is Primed for Growth

Despite Buy-Now-Pay-Later (BNPL) info flooding the newswires, it holds only a small percentage of the payments landscape with 9% of global e-commerce transactions in 2021 (Juniper Research). However, it is growing fast both in the US and globally.

By 2026, BNPL services will account for over 24% of global e-commerce transactions (Juniper Research) for physical goods by value.

Why the rapid growth estimates? BNPL is becoming “hot” for all generations:

  • According to a February 2022 Afterpay report, Gen Z BNPL use is up by 900% since January 2020.

There’s a belief in the payments industry that the surge in BNPL adoption was due to increased online shopping during the pandemic. Yet the numbers have grown even as people resumed in-person shopping.

Based on current growth, Kaleido Intelligence estimates that there will be $680 billion of global BNPL transactions in 2025. And Juniper Research suggests transactions up to $995 billion by 2026. This progression is extreme, so it isn’t a surprise that BNPL usage is outpacing growth of other payment types—even credit card payments.

The In-Store Modern Layaway Plans

So, what is BNPL? It is point-of-sale financing where a consumer is offered a personal loan for the item being purchased and a short term to repay the loan (typically 4-6 payments). BNPL isn’t new or unique, but more like a modern take on the in-store layaways of the past where the consumer gets to take the product home before the loan is paid.

Ultimately, BNPL is a utility that can be quite valuable when used correctly to help retailers increase sales. Merchants seem to love the offerings and have been quick to either create a direct relationship with one BNPL partner (like Target and Affirm) or offer multiple BNPL partners so a consumer can choose the best fit. In the BNPL marketplace, there are new players added every day with no clear frontrunner at this time.

To learn more about BNPL, check out A Guide to Buy Now, Pay Later and Digital Debt Collections.

Broadening Horizons with Non-Traditional Offerings

BNPL is growing beyond the online market and broadening the products offered in the past. BNPL companies, Affirm and Klarna, have both partnered with terminal maker Verifone for in-person transactions. These partnerships allow merchants to offer BNPL options at the time of sale.

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Beyond retail products, providers are springing up to offer BNPL in places not traditionally associated with a layaway style loan. Interestingly, a British BNPL startup called Bumpers helps people pay for car repairs within the BNPL model.

Plus, the rental market provides multiple offerings for both housing and autos. A US BNPL provider, Flex, allows renters to split their rent payments.

BNPL is also becoming popular to reduce anxiety for certain unexpected, yet essential, expenditures. For example, dental work and even veterinarian bills, use BNPL as another option to spread out payments and soften an immediate financial blow without incurring incremental credit card charges.

CFPB Already Showing Interest in BNPL

While growth is fascinating, the question in the US is which regulatory body will take the lead on the BNPL market? The CFPB showed a clear interest when they opened an inquiry late last year into five of the largest service providers: Affirm, Afterpay, Klarna, PayPal and Zip. Each provider was asked to give data to clarify the risks and benefits of the product to consumers.

Pymnts.com reviewed the complaints from the CFPB database and reported “that the main issues consumers complain about are ‘incorrect information in your report’ and ‘attempts to collect debt not owed.’” Based on this data, the processing of the information is the issue, not how BNPL works.

We think that the CFPB will look at the following items as each relates to BNPL:

  • Considering the ability for consumers to pay before making the loan
  • Ensuring customer receive correct disclosures
  • Identifying whether consumers received protections similar to what credit card companies provide
  • Confirming that correct rules for late fees and other policies are in place
  • Ensuring that the consumer isn’t charged by both their bank and the BNPL provider due to inability to pay
  • Understanding the type of data that’s being collected and how BNPL providers use the data 

For more on the CFPB and BNPL, see “The CFPB Is Coming for Fintechs, BNPLs, Telcoms, and More.”

CRAs Join the BNPL Frenzy

Credit reporting agencies (CRAs) are working to get ahead of this market after it took off in such a rapid manner. For example, Equifax announced recently they are accepting tradelines for BNPL. By creating a new industry code, Equifax ensures that loans will not be lumped in with other traditional loan types.

TransUnion and Experian are following suit with similar offerings. However, there isn’t enough data to build out full risk scorecards. Also, given how short-term the loans are, we wonder how data will be accurately reflected in reports.

Credit reporting agencies are touting that incorporating this information into reports can help a consumer with a subpar or thin credit file. Of course, this assumes the consumer pays on time. Given that 34% of BNPL users have been late on at least one payment, how this translates in the market remains to be seen (Credit Karma).

Third Party Debt Collection on Deck for BNPL

Given the tremendous growth in consumer base and available markets, an increase in volume for third party debt collectors is expected. Understanding who and what is being reported to the credit reporting agencies may give them an advantage.

If BNPL providers report to the credit reporting agencies, then credit score impact could be used as leverage to collect debt. Either way, collectors will have to be just as creative as the BNPL companies in product offerings.

Collectors should be prepared to implement the same approaches as the BNPL providers by creating a frictionless approach to collecting. Also, we believe collectors should consider employing user experience expertise to build creative, technology-based solutions for paying debt.

These solutions could cover payment terms and consolidation strategies. More importantly, collectors should look at a solution that is an easy-to-use and accessible place to manage payments from any type of device the consumer uses. Making it easy to pay may be the differentiator for the collector.

Keep Watch on the Activities Swirling Around BNPL

So, what was old is new again with various flavors of BNPL and a host of new challenges. Given the accelerated growth of BNPL, this payment type is here to stay. We will be closely watching—and planning for—new rounds of regulations, changes in credit reporting, continued product evolution and challenges in collections.

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John Sanders is the CEO and Managing Partner of Bridgeforce. As CEO and a long-time industry leader, John is familiar with all aspects of the financial industry—and brings deep knowledge on topics from underwriting to digital implementations, technology transformation, digital fintech, business optimization, and investment strategies.

Melissa Peirano is the Senior Program Manager at Bridgeforce. With over 20 years’ experience in the payments sector, Melissa held operational leadership, strategic planning and execution, as well as P&L responsibility roles at a number of industry leading organizations, including Global Payments Inc./Heartland Payment Systems.

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Fifth State in the Union Becomes Fifth State to Enact Data Privacy Legislation

On May 10, Gov. Ned Lamont signed into law Substitute Senate Bill 6 (Public Act 22-15), Connecticut’s version of comprehensive consumer data privacy legislation.  This makes Connecticut the fifth state to enact such legislation, following California, Virginia, Colorado, and Utah.  The Act will go into effect July 1, 2023.

Applicability

The Act applies to persons that conduct business in Connecticut or persons that produce products or services that are targeted to Connecticut residents and that during the preceding calendar year:

  • Controlled or processed the personal data of not less than 100,000 consumers, excluding personal data controlled or processed solely for the purpose of completing a payment transaction; or
  • Controlled or processed the personal data of not less than 25,000 consumers and derived more than 25 percent of their gross revenue from the sale of personal data.

Exemptions

The Act does not apply to:

  • Nonprofit organizations;
  • Financial institutions or data subject to the Gramm-Leach-Bliley Act;
  • Institutions of higher education;
  • Covered entities and business associates as defined in the Health Insurance Portability and Accountability Act of 1996 (HIPAA) Privacy Rule;
  • Boards, agencies, and political subdivisions of the state;
  • National securities associations.

Additionally, the Act exempts the following, as well as other, information and data:

  • Protected health information under HIPAA, and certain other health related data;
  • Personal information used pursuant to the Fair Credit Reporting Act;
  • Data processed or maintained for certain employment purposes.

Consumer Rights

The Act provides consumers with the right to:

  • Confirm and access personal information being processed;
  • Correct inaccuracies;
  • Delete personal data provided by the consumer or obtained from other sources;
  • Obtain a portable copy of the consumer’s personal data;
  • Opt-out of the processing of personal data if the purpose of the processing is: a) targeted advertising; b) sale of personal data; or c) profiling.

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Contract Requirements

A contract between a controller and a processor must ensure:

  • Each person processing personal data is subject to a duty of confidentiality;
  • Deletion or return of all personal data at the end of the processor’s provisions of services;
  • Availability to the controller of information evidencing the processor’s compliance with the Act;
  • Processor’s contracts with subcontractors are in writing and mirror the obligations of the processor with respect to personal data;
  • Cooperation from the processor with the controller’s reasonable assessment requirements.

Risk Assessments

Under the Act, some processing is considered to present a “heightened risk of harm” to consumers:

  • Processing for the purpose of targeted advertising;
  • Processing for the purpose of sale;
  • Processing for the purpose of profiling, in some instances;
  • Processing sensitive data, such as personal data related to race, religion or health conditions, genetic or biometric data, personal data collected from a known child, and precise geolocation data.

When that is the case, a controller is required to conduct and document a data protection assessment to “identify and weigh the benefits that may flow, directly and indirectly, from the processing to the controller, the consumer, other stakeholders and the public against the potential risks to the rights of the consumer associated with such processing, as mitigated by safeguards that can be employed by the controller to reduce such risks.”

The Attorney General may require the disclosure of an assessment if relevant to an investigation, but the assessment is confidential and not subject to public disclosure.

Enforcement

The Attorney General has the exclusive authority to enforce the Act but must first provide a 60-day opportunity to cure if, in the Attorney General’s opinion, cure is possible.  The cure provision sunsets Dec. 31, 2024. 

In the absence of a cure, a violation is enforced as an unfair trade practice pursuant to Conn. Gen. Stat. § 42-110b, allowing for a temporary restraining order or permanent injunction which, if violated can result in a civil penalty of not more than $25,000 per violation.  Additionally, a violative act or practice that was willful may result in a civil penalty of not more than $5,000 per violation.

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