Buy now, pay later plans easier to access than ever, but consumer advocates urge caution

If you’ve purchased something online recently, you’ve probably noticed several payment options – credit card and maybe PayPal. And, on many sites, another more recent addition: Buy now, pay later.

BNPL plans are offered by companies like Klarna, Afterpay or Affirm, and the principle is not unlike that of any other type of financing: place your order now, make a deposit and divide the rest into smaller installments, usually four.

Buy now, pay later credit has exploded in popularity over the past few years – enough to catch the attention of the Consumer Financial Protection Bureau. Last week, the government agency published a report on the apps, noting their massive increase in usage, as well as their downsides. Disadvantages like lack of monitoring, data collection and the possibility for borrowers to take on too much debt.

Nadine Chabrier is a senior political and litigation lawyer at the responsible credit center, and explained to Standard why consumers should exercise caution when financing with Buy Now, Pay Later. She said that while loans aren’t inherently predatory, they can quickly rack up fees if borrowers aren’t careful. Listen to the interview above or read the transcript below.

This transcript has been slightly edited for clarity:

Texas Standard: CFPB director Rohit Chopra called Buy Now, Pay Later the “new take on the old layaway plan.” How do these plans differ from traditional lines of credit?

Nadine Chabrier: Well, buy now, pay later, it’s like a credit card. It’s a revolving credit, so it allows you to borrow money, spend the money you have, then pay it back and borrow again as needed. It’s really the same as a credit card.

It doesn’t look that different. So why does the CFPB want to take a closer look?

The concerns we have are, and the CFPB really pointed this out in their recent report, that there are really inconsistent consumer protections. So there is a lack of underwriting, which means that Buy Now, Pay Later does not take into account the debts you already have when you borrow. There is a lack of disclosures. There is a lack of objection rights for Buy Now, Pay Later. So these are some of the concerns that we as consumer rights advocates and the CFPB have raised.

I think some would argue that it basically offers credit options, similar to what you describe for those who can’t access credit cards, for example. And many of these plans seem to be uninspiring, which certainly seems like a plus. Why wouldn’t that be a net positive?

We’re not necessarily saying that Buy Now, Pay Later has to go away or that there are inherent issues with that. It just needs to be regulated like a credit card. So it becomes a problem when, for example, as many consumers do, you take out multiple Buy Now, Pay Later loans. So they stacked their loans, and then they potentially lose track of the payments, incurring late fees and potentially overdraft fees. So some of the things we suggest help people understand the product they’re using. Disclosures help ensure that consumers can actually pay for what they borrow.

I just want to get to the reality, though, of the human experience. As we all know, often when someone makes an online purchase and sees a list of disclosures, they just click the checkbox and move on. There’s something about human nature there, or you’re looking to make that purchase. Will these revelations really make a difference?

I think they do. I think with a credit card you have, for example, an APR, and that helps you understand the total cost of credit. If you know up front what you’re getting into and what fees you might incur for using the product, like a $25 late fee, for example – which isn’t disclosed at the start of the process with Buy Now, Pay Later – It will help.

When using a Buy Now, Pay Later plan, are you subject to higher fees and penalties than if you were using a credit card?

You could be. The problem is, like I said, you just don’t know at first. So, well, that sounds like a good idea. Check if you make a mistake in terms of payment dates or cash flow, then you incur those late fees you didn’t expect. It is therefore marketed without interest. However, people find that in practice, because you don’t have a fixed due date like a credit card, it can be a problem for consumers when they have multiple payments, as I said , with the stacking of loans and the use of several Buy now, pay later purchases.

Is buy now, pay later fundamentally predatory or not so much?

I wouldn’t call it fundamentally predatory. I would say it’s a new product that doesn’t have the safeguards that consumers need.

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