Buy now, pay later services could have hidden costs: PIRG analysis


The Buy Now, Pay Later services offer borrowers the ability to split their payments for online purchases. But do they do more harm than good? (iStock)

Many consumers are increasingly using buy-it-now, pay-later (BNPL) services at checkout to help them pay for their purchases. But new analysis from US PIRG has shown that these services could do more harm than good.

BNPL Suppliers Integrate with Retailers to Offer Consumers the Ability to Split Their Online Purchases in smaller installments. These interest-free payments are usually set to be repaid every two weeks, but are subject to late fees.

US PIRG analyzed the Consumer Financial Protection Bureau‘s (CFPB) database of consumer complaints related to BNPL services and found that consumers complained about hidden fees, high interest rates and problems if they enter in debt collection.

“There is no free lunch, said Ed Mierzwinski, senior consumer program director for the US PIRG Education Fund. “Or free plane tickets. Or free devices. But it’s not hard to get the latter two without cash these days with the proliferation of Buy Now, Pay Later plans.

“Many of these installment plans, often advertised as ‘free’ to the consumer if all payments are made on time, are not managed by the company you buy your furniture or electronics from,” Mierzwinski said. “Instead, they’re run by third-party financial companies — known as fintechs — and some claim they’re not subject to credit card consumer protections.”

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The CFPB gets tired of buying now, paying later

At the end of last year, the CFPB opened an investigation in BNPL programs to examine the risk of using this option. The CFPB has opened a comment period on the investigation, encouraging consumers and stakeholders to submit comments to the bureau by March 25.

“Buy Now, Pay Later is the new version of the old layaway plan, but with modern, faster twists where the consumer gets the product immediately but also gets the debt immediately,” said the CFPB director. , Rohit Chopra, in December. “We have ordered Affirm, Afterpay, Klarna, PayPal and Zip to submit information so that we can report to the public on industry practices and risks.”

Consumer rights groups have also been skeptical of BNPL, and 79 groups sent a letter to the CFPB director in December expressing their concerns.

“BPL products do not underwrite a consumer’s ability to repay, may rely on the expectation of late fees, may be difficult to administer, and may trigger punitive overdrafts or insufficient funds charges if linked to a bank account,” the letter read. “Furthermore, these products can cause consumers to incur unmanageable debt and do not have the same dispute or refund rights as credit cards if a consumer is unhappy with their purchase.”

If you have accumulated debts with BNPL services, you might consider taking out a personal loan to help pay them off. You can visit Credible to compare several lenders at once and choose the one with the best interest rate for you.


Consumers could be hit hard if they miss payments

While BNPL options offer consumers flexibility in paying for large purchases, missed payments could create more of a burden than consumers are prepared for, according to the PIRG report.

“At the time of purchase, a six-week or two-month interest-free BNPL offer may seem better than the revolving monthly interest rate if you don’t pay your credit card bill in full,” said Mike Litt, consumer from the US PIRG Education Fund. campaign manager, said. “But at the end of the day, buyer beware if you don’t make all your payments on time. The CFPB needs to make sure that however you pay, you have consumer protection.”

If you want to consider alternative loan options, you can consider taking out a personal loan. Contact Credible to speak with a loan expert and get all your questions answered.

Do you have a financial question, but you don’t know who to contact? Email the Credible Money Expert at [email protected] and your question might be answered by Credible in our Money Expert column.

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