Affirm Boss Embraces CFPB’s Regulatory Role in Contingent Payment Market

In recent fintech news, Affirm’s CEO Max Levchin expressed his positive stance on the Consumer Financial Protection Bureau's (CFPB) oversight during the company's fiscal first-quarter earnings call. Levchin emphasized that CFPB supervision formalizes the relationship between Affirm and the regulatory body, leveling the playing field in the rapidly growing buy now, pay later (BNPL) market.

Notably, Affirm's quarterly filing as of September 30 disclosed its status as being "Being subject to supervision from the CFPB, from our point of view, is a formalization of the relationship between Affirm and the bureau," allowing comprehensive examinations to ensure compliance with consumer financial protection laws. This represents a shift from the previous quarterly statement, which anticipated supervision in the "immediate future."

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In addition, Levchin noted during the earnings call that the company views CFPB oversight as a positive step for the industry, emphasizing the importance of engaging with regulators. He highlighted the benefits for customers and Affirm, believing that such oversight promotes fair competition within the BNPL market.

While the exact commencement date of CFPB oversight for Affirm remains undisclosed, a company representative stated that it marks a significant move towards promoting flexible and transparent payment options. The spokesperson expressed the company's eagerness to collaborate with the Bureau in establishing consistent industry standards.

The CFPB's involvement in BNPL and fintech has been a topic of interest, with the agency recently suggesting the regulation of major non-bank technology businesses, including Apple and Google, that provide digital wallets or payment apps. However, the CFPB declined to comment on Affirm's specific case.

Levchin also acknowledged that Affirm has been in continuous communication with the CFPB for a substantial period and anticipates continued engagement. In its most recent quarterly report, Affirm lays out what could happen during CFPB examinations, such as issues that need to be addressed, investigations, enforcement actions, regulatory fines, and changes that must be made to business products, policies, and procedures.

The CFPB's proposed definition of larger participants in the market for general-use digital consumer payment applications, processing five million or more digital payments annually, adds clarity to the regulatory landscape. When it comes to BNPL firms, the CFPB representative made it clear that transactions done through nonbank digital apps would not be considered market activity, but transactions done in third-party digital wallets using BNPL providers' payment credentials would be.

The CFPB's actions since its September 2022 BNPL report show that the regulatory landscape for BNPL is changing. According to Affirm's fiscal first-quarter report, sales increased 37% to $496.5 million while losses decreased by $171.8 million. As the industry awaits potential new rules, a recent House panel proposal calls for a comprehensive study by the CFPB and GAO on BNPL use before issuing any regulatory changes.