Financial Protection

Both CFPB & FTC warn holiday shoppers of risks of buy now, pay later

Screenshot CFPB BNPL Video | Public Domain
Screenshot CFPB BNPL Video

This week, both the CFPB and FTC have issued warnings to last-minute holiday shoppers that Buy Now, Pay Later (BNPL) isn’t always free. More and more retailers are embedding these “Pay in 4” plans into online and brick-and-mortar checkout options.

As a CFPB video also explains:”multiple Buy Now, Pay Later loans can be difficult to keep track of.” The CFPB alert explains further, echoing one of PIRG’s biggest concerns:

“Many Buy Now, Pay Later services and apps use your data and shopping history to encourage you to buy more, and spend more.”

Although we might add to the end “[and spend more]…on stuff you don’t need, can’t afford and will end up throwing away.”

One of PIRG’s other biggest concerns is that some consumers may be using BNPL for food or gas. It’s not a sustainable plan to pay for your food over time because you’ll need to buy more food before you are finished paying for last month’s groceries.

In September, the CFPB released a report on BNPL. It’s based on a major study of five big BNPL providers and written for researchers and reporters, so consumers might instead check out CFPB director Rohit Chopra’s accompanying remarks:

“Put simply, Buy Now, Pay Later can be compared to a credit card that incorporates informercial-style payment plans. While major providers don’t currently rely on charging interest, they make money through fees charged both to sellers and to consumers who don’t pay on time. But perhaps, more importantly, we find that Buy Now, Pay Later firms are building business models dependent on digital surveillance.”

Director Chopra has urged CFPB staff to fix the holes in BNPL consumer protections, starting by extending

credit card regulations to BNPL.

The FTC adds some more good advice:

“Many plans charge high late fees, per-transaction fees, or change fees, among others. When you use a buy now, pay later plan, you might not have the same protections you would if you paid with a credit or debit card. For example, the credit card protections for disputing a payment may not apply.

Yikes! You can check our own PIRG consumer tips on BNPL here. Here’s a link to our recent report: The hidden costs of Buy Now, Pay Later.

Happy holidays, but watch for the pitfalls of BNPL and remember: If a deal sounds too good to be true, it probably is.

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