Buy Now, Pay Later, What's the Catch?
Buy Now, Pay Later (BNPL) loans have become a popular way of making large purchases. According to the Consumer Financial Protection Bureau (CFPB) Director Rohit Chopra, consumers think of them as a close substitute for credit cards. These loans allow consumers to break up larger purchases into smaller, interest-free installments, similar to a credit card. Although many consumers could think of these as risk-free alternatives, there are several things that should be considered that could harm consumers.
In a typical Buy Now, Pay Later loan, the consumer may make a purchase of $500. This amount is split into 4 payments with the first payment due at checkout. The next 3 payments will be due in two-week intervals over the next 6 weeks. The CFPB is generally comfortable with this part of the process but warns of other details. While it’s standard that credit cards offer consumer protection, not all BNPL loans do. There isn’t a standardized cost-of-credit disclosure, forced opt-in for autopay, substandard dispute resolution rights, or some companies will even apply multiple late fees for a missed payment.
In this digital age, the CFPB is also concerned about the privacy of consumers. Buy now, pay later loans have an aim towards the younger generation, moving to business models that require apps on phones. These apps can track their users and develop valuable digital profiles of their user’s shopping habits and preferences. The CFPB is concerned that companies that collect user data will consolidate their databases and create user profiles that infringe on their privacy, security, and autonomy. Many Buy Now, Pay Later apps are also engineered to encourage more spending and borrowing. As a result, many consumers could take out multiple loans over a short period of time, compounding their debt.
For now, the Consumer Financial Protection Bureau will address issues as they are discovered through investigations. Ultimately, the CFPB would like the same level of consumer protections and oversight in place for credit cards applied to these types of loans.
