The hidden costs of ‘Buy Now, Pay Later’

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Complaints to CFPB, Better Business Bureau show need for action

US PIRG

WASHINGTON — When you get something without using a credit card or paying at checkout, there’s almost always a catch — or several. In a new report, The hidden costs of “Buy Now, Pay Later,” the U.S. PIRG Education Fund reviewed data from the Consumer Financial Protection Bureau (CFPB) and the Better Business Bureau (BBB) and found that the most common complaints about “Buy Now, Pay Later” plans include hidden fees, high interest rates and problems when it comes time for debt collection.

“There’s no such thing as a free lunch. Or free airline tickets. Or free appliances. But it isn’t hard to get the latter two with no money down these days with the proliferation of ‘Buy Now, Pay Later’ plans,” said Ed Mierzwinski, the senior director of U.S. PIRG Education Fund’s consumer program. “Many of these installment plans, often advertised as ‘free’ to the consumer if all payments are made on time, aren’t run by the company you buy your furniture or electronics from. Instead, they’re managed by third-party financial firms — known as fintechs — and some claim they aren’t subject to credit card consumer protections.” 

Eighty-nine consumer and civil rights groups, including U.S. PIRG and several state PIRGs sent a letter to CFPB Director Rohit Chopra in December 2021, warning that “… BNPL products do not underwrite for a consumer’s ability to repay, can rely on the expectation of late fees, can be difficult to manage, and can trigger punitive overdraft or non-sufficient fund fees if linked to a bank account. Further, these products can lead consumers into taking on unmanageable amounts of debt and lack the same dispute or refund rights that credit cards have should a consumer be unsatisfied with their purchase.”

Buy Now Pay Later provides competition for banks and the credit cards they offer. Competition is usually good for consumers, but people need to understand what they are getting into. 

“At the point of purchase, a BNPL offer of six weeks or two months with no interest may seem better than the revolving monthly interest rate if you don’t pay your credit card bill in full,” said Mike Litt, U.S. PIRG Education Fund’s consumer campaign director. “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 no matter how you pay, you get consumer protections.” 

Here are U.S. PIRG Education Fund’s “Tips To Avoid BNPL Pitfalls.”

The CFPB is soliciting public comments about “Buy Now, Pay Later” through Mar. 25.

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