Letter to HUD on the Buy Now Pay Later Lending RFI

Dear Sir or Madam:

The American Bankers Association appreciates the Department’s request for information (RFI) on risks associated with the rising use of "Buy Now Pay Later" (BNPL) products. We commend HUD’s foresight in engaging the financial services community in this effort to better understand how this emerging financial product can affect Federal Housing Act (FHA) mortgagees and their ability to evaluate a borrower's financial profile and ability to repay long-term mortgage debt.

The RFI solicits information on whether BNPL usage affects a household’s risk profile for purposes of mortgage eligibility for FHA-insured mortgage programs. We commend HUD’s attention to potential risks arising from BNPL financing as the impacts of BNPL products are not yet clearly defined and comprehensive reliable data is not readily available. We agree that HUD should continue to study BNPL financing and its potential impact on consumers and FHA-insured mortgage programs.

Identifying BNL financing

In response to RFI inquiries regarding identification of BNPL obligations, we note that BNPL financing is similar to other short-term debt incurred by consumers. BNPL loans are often not detectable to creditors because such accounts are not captured in borrower credit histories. As noted in the RFI’s preamble, the absence of BNPL obligations from traditional credit reporting systems complicates a bank’s ability to assess total debt for customers that access this product. Moreover, banks report that BNPL providers do not have consistent credit reporting policies, which means that even when they are reported, the resulting data is incomplete or inconsistent.

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