On June 24, 2025, the Department of Housing and Urban Development (“HUD”) published a Request for Information (“RFI”) to better understand how increasing consumer use of Buy Now Pay Later (“BNPL”) products impacts housing affordability and stability in connection with the residential loan programs insured by the Federal Housing Administration (“FHA”). BNPL products, which allow consumers to purchase goods and services and repay over time (typically, though not always, through four or fewer deferred installments payable over six to eight weeks with no periodic interest or other finance charges), have continued to gain popularity over the past decade. To date, however, HUD has not incorporated consideration of BNPL products into underwriting guidelines for FHA-insured mortgage loans. With the RFI, HUD is seeking more information on whether it should develop policies to address potential ability-to-repay risks from these relatively new products.

Background on BNPL

While retail financing has a long history in the U.S., the concept of BNPL as a distinct class of product largely stems from the introduction of a “pay-in-4” product into the U.S. around 2018. This core element of the BNPL market involves the origination of unsecured, interest-free short-term installment loans to pay for relatively small-dollar retail purchases. Payments are usually due in four or fewer equal installments, with the first payment often due as a down payment at the time of sale. Subsequent payments are typically due every two weeks. Consumers enter into BNPL loans frequently through apps or purchase-and-origination flows managed by fintech BNPL providers. BNPL lenders may approve or deny a loan based on their own individual underwriting criteria, which may include reliance on a consumer report (often pulled as a soft pull to prequalify a consumer for a potential range of terms) and/or the consumer’s repayment history with the BNPL lender. BNPL lenders generally do not report repayment history or default to the consumer reporting agencies, although: (i) some lenders offer consumers the option to report positive repayment histories, and (ii) credit bureaus are planning to incorporate BNPL payments into credit scores and craft new categories to better match typical BNPL structures (as compared to reporting formats currently relevant for installment loans with monthly payments or traditional credit cards), each of which may increase adoption of BNPL credit reporting over time.

Use of BNPL products has increased rapidly over the past decade. As HUD notes in the RFI, the Consumer Financial Protection Bureau (“CFPB”) found that 21% of consumers with a credit record used a BNPL product from a major provider in 2022. While BNPL products were initially offered in the U.S. primarily in connection with retail purchases from online sellers that participated in a given BNPL provider’s network, the market has since expanded such that many BNPL products may now be used for in-store/in-person purchases of various goods and services (e.g., groceries, flights, medical services, and rent) and/or purchases from sellers that have no agreement or affiliation with a particular BNPL provider.

The rapid development of the BNPL market has left various regulators playing catch-up. While some states license and regulate BNPL providers under general unsecured consumer loan laws or retail financing regimes, the “four installment/no finance charge” BNPL product escapes such laws in many states, as well as certain federal consumer financial laws and regulations. That said, regulatory engagement specifically targeting the BNPL market has become more common. In May 2024, for example, the CFPB issued an Interpretive Rule stating that BNPL lenders are “card issuers” and “creditors” under Regulation Z. The CFPB also published a report on its multi-year study of BNPL products. More recently, however, the CFPB has changed course on attempts to assert that BNPL products are subject to certain requirements under Regulation Z. In May 2025, the CFPB first announced it would not enforce the BNPL Interpretive Rule, before formally withdrawing it a week later. As the CFPB has pulled back, states have begun reintroducing themselves in BNPL oversight. In particular, New York recently enacted the first state licensing and regulatory regime that treats BNPL products as a distinct consumer financial asset class. HUD’s RFI signals that regulatory interest in BNPL products remains broad and robust.

HUD’s Request for Information

HUD seeks public input on how BNPL products could impact housing affordability and stability. Notably, HUD points out that using BNPL products could impact a borrower’s financial ability to manage rent and mortgage payments. According to the CFPB’s BNPL report, most users of BNPL products have multiple active BNPL loans at a time. HUD is concerned that such usage reflects constrained borrower liquidity, which could impact qualifying ratios and risk layering in underwriting. With traditional credit products, such as credit cards, those constraints would appear on a borrower’s consumers report. However, for now, BNPL products are not typically reported on consumer reports, so underwriters may not be able to consider a borrower’s use of BNPL loans as a source of credit. Accordingly, HUD is considering whether to revise FHA policies to include BNPL products as part of FHA underwriting. HUD is also seeking information on how BNPL obligations may impact the ability of FHA lenders to accurately assess lending risk.

As a relatively new type of lending product, HUD guidelines do not address BNPL loans. FHA underwriting policies do not currently require consideration of short-term, closed-end obligations that will be paid within 10 months of closing and that make up 5% or less of a borrower’s gross monthly income. As a result, FHA underwriters do not consider BNPL products, which are typically paid within two months. Further, since BNPL loans are typically not reported on consumer reports, FHA lenders may be unaware of a borrower’s use of BNPL loans, existing obligations, and potential defaults.

HUD requested information in response to 22 specific questions. The questions cover how BNPL products are used by borrowers and considered by lenders, as well as potential impacts on borrower financial health and housing stability. HUD also asks how FHA underwriting guidelines should, if at all, incorporate BNPL obligations. Moreover, HUD seeks information on further resources it can consult to evaluate the financial impact of BNPL products on consumer debt and risk. Comments on the RFI are due on August 25, 2025.

Notably, the RFI acknowledges the potential benefits of BNPL products. HUD specifically cited that the CFPB’s report on BNPL loans found that they had lower default rates than credit cards. The RFI states that this data suggests “that, when used responsibly, BNPL products may serve as a lower-risk, short-term credit alternative for consumers with limited access to traditional financing.” The RFI asks specifically how FHA might differentiate between “responsible BNPL use” and “overleveraging.”

Conclusion

HUD’s RFI demonstrates that even as the CFPB has walked back its efforts to further regulate BNPL products, HUD is seeking to understand the potential risks BNPL products could pose to FHA-insured loans. Depending on how HUD interprets the responses to the RFI, HUD could consider adopting guidelines to incorporate consideration of BNPL products into FHA underwriting in the future. FHA lenders may consider commenting on the RFI to express their views on any risks posed by BNPL products, whether FHA should consider incorporating BNPL guidelines into the underwriting requirements, and how, if at all, they currently consider BNPL products in underwriting decisions.