Business

CFPB crackdown on ‘buy now, pay later’ is ‘good news’


Regulatory oversight creates a structured environment for 'buy now, pay later' companies: Bernstein

The party may end for “buy now, pay later”.

Consumer Financial Protection Bureau say Thursday that these installment payments come with “several areas of potential harm to consumers,” including data collection, debt accumulation, and “loan stacking” — or a combination of multiple packages. payment at the same time.

Buy now, pay to the following lenders — which include companies like Affirm, Afterpay, Klarna, PayPal and Zip — also “do not offer standard protections elsewhere,” according to the report. consumer watchdog report.

CFPB director Rohit Chopra said in a statement: “Buy now, pay later is a rapidly growing loan category that serves as an alternative to credit cards. “We will work to ensure that borrowers have the same protections, regardless of whether they use a credit card or a Buy Now, Pay Later loan.”

Marshall Lux, a fellow at the Mossavar-Rahmani Center for Business and Government at the Harvard Kennedy School, called the government’s findings “very encouraging.”

“It is definitely a call for non-banks that will be even more difficult in the future,” said Lux. “The good news is that they will be managed,” he added.

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Loans encourage users to ‘borrow more’, CFPB finds

Buy now, pay later, essentially an interest-free loan, “has captured the interest of consumers seeking the flexibility of being able to pay for goods and services over time,” the CFPB said. time, but who may have borrowed other credit products”.

However, as it becomes more popular, users are more susceptible to overspending and missed or delayed payments, the report also found. That behavior damaged the credit histories of some borrowers.

“Buy now, pay later is designed to encourage consumers to buy more and borrow more,” the report said. “As a result, borrowers can easily end up taking out some loans in a short period of time at multiple lenders, or Buy Now, Pay Later loans can affect other loans.”

In a statement, Affirm said it was “encouraged by the CFPB’s conclusions following their review.”

“Our top priority is to empower consumers by providing a secure, honest and responsible payment method over time with no late or hidden fees,” the company said. . Other lenders did not immediately respond to requests for comment.

42% of 'buy now, pay later' people made late payments on those loans, survey shows

‘There will be more damage’

Lux said that while the government’s action is promising, the CFPB’s report is based on data from the start of the year and “does not reflect the damage that has been done over the past months” as “inflation has skyrocketed”. .

The current, more consumers are clicking buy now, paying for the following services for “necessary” purchasessuch as groceries, as rising prices make it harder to cover daily expenses, other data shows.

Furthermore, the rapid growth of buy now, pay later is mainly driven by young consumers, with two-thirds of buyers buying now, pay later to borrowers considered as subprime, Lux notes, which makes them particularly vulnerable.

It will also take time for the government to do more surveillance, he added. And in the meantime, “more damage will be done.”

In the “best-case scenario, reporting causes something to change, but I think it’s more likely than simply taking time for this to have an impact,” Lux said.

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