Although financing for consumer goods and services is not a new concept, the methods, means, and speeds of providing point-of-sale finance to consumers have been advancing rapidly in recent times. The history of consumer credit goes back to retailers who allow consumers to pay for goods and services over time. The financing of goods and services was later outsourced to banks and financial firms who took on the risk and benefit of the financing on behalf of the retailer. Over time, the correlation between the creditor and the retailer became closer and it sometimes became difficult to distinguish between the retailer and the creditor through the sales and financing process. Despite this evolution in POS funding, roughly the same disclosure regime remains in place as it was 40 years ago.
Existing model data were created for a physical world, but there are exponentially more transactions taking place electronically, and this number is increasing dramatically due to the recent pandemic. The devices that perform these transactions are becoming smaller and more mobile. Many model shapes are designed for 8½ × 14 paper, but Apple’s latest iPhone is 5.78 by 2.82 inches. Few creditors deviate from model forms in view of the regulatory safe havens. Unfortunately, this practice doesn’t always provide the best customer experience. While retailers continue to offer products and services to consumers through consumer-preferred media – mostly mobile devices today – affiliate creditors cannot apply their funding disclosure regime to deliver the customer experience consumers expect on these retailers’ platforms.
Various options are available to creditors to rethink their disclosure framework. First, while believers are comfortable using model forms, using model forms is not the only way to uphold the letter and spirit of the law. Creditors may consider creating alternative disclosures that meet the technical requirements of the disclosure mandates in a mobile device-friendly manner. Second, creditors can work with retailers to identify customer issues and assess whether to update model forms. In addition, the Consumer Financial Protection Bureau (CFPB) has provided opportunities to test new claims, including the Study Disclosure Sandbox, where creditors can improve existing claims and test new forms with the CFPB. In addition, creditors can contact the CFPB Innovation Office to request a non-action letter for a CFPB-approved disclosure or process.
As financing further integrates with point-of-sale transactions, it remains vital that consumers know when they are interacting with a bank (with consumer credit disclosure being the epitome of a consumer making the interaction with banks) and when consumers interact with them the retailer. This distinction is critical for several reasons, including true lender and privacy purposes. Regulatory developments and cases in which this issue has been assessed has increased rapidly, likely due to more POS funding agreements and the networking of retailers and financiers. The Office of the Currency Auditor seeks to resolve the uncertainty of banking partnerships through a proposed regulation while states continue to assess the real concerns of lenders that affect their respective residents. In addition, privacy concerns for both the retailer and the creditor include ownership of information collected and rights to use that information, including disclosure and use of information by third parties. Understanding these increasingly complex data flows is important in assessing issues under federal law, including the Fair Credit Reporting Act, and state law, including the newly revised California Online Privacy Protection Act.
Finally, it is important to draw clear lines that demarcate the retailer’s and creditor’s responsibility for the regulatory interactions. The definition of responsibilities clearly supports inquiries and reviews from regulators, as well as ultimate responsibility (which often rests with the supervised entity) when there is a problem with the program. Regulators will evaluate both the form and content of point-of-sale funding programs, and parties are well-served to have clearly delineated property lines.
Point-of-sale financing continues to evolve faster than time and legislation itself. To take advantage of this renewed growth opportunity over the long term, retailers and financial partners must be mindful of both old and new regulations, while keeping closely to changing needs and consumer behaviors.