OCC Issues Risk Management Guidance For BNPL Lending

On December 6, 2023, the Office of the Comptroller of the Currency (OCC) issued a bulletin that provides guidance to banks on managing risks associated with certain "buy now, pay later" (BNPL) loans. While the OCC notes that BNPL loans can provide consumers with a "low-cost, short-term, small-dollar financing alternative to manage cash flow," it warns that BNPL lending can result in risks to consumers, as well as "credit, compliance, operational, strategic, and reputation risks" to banks, and that such risks should be mitigated.

The OCC bulletin specifically applies to loans that are repayable in four or fewer installments with no finance charges (i.e., no interest and no other finance charges). The OCC clarifies that the guidance does not apply to "traditional" installment loans, meaning loans repayable in more than four installments, or loans that charge interest or have other finance charges.