If you've shopped online, you might have seen the option to pay for your purchase in several payments. These plans are called "Buy Now, Pay Later," and the industry has exploded in popularity. In 2021, millions of loans totaled more than $24 billion dollars, up from only $2 billion in 2019.
When your budget is tight, it can be a tempting solution. These loans work by offering you a way to pay them over the course of a few weeks or months.
NBC 7 Responds talked to several people who had used these services before.
"I was buying a bunch of clothing and just didn't have all the cash up front," said Kyla. "They broke it up every few weeks so it was like micro payments."
These payment options are offered for everything from electronics to concert tickets, and used by tens of millions of people.
A new report form the Consumer Financial Protection Bureau looked at five Buy Now, Pay Later companies: Affirm, Afterpay, Klarma, PayPal and Zip.
The CFPB report says there are some benefits, like a straightforward repayment structure, but there are also some concerns.
These payment plans plans skip the typical lengthy approval process, but are still loans that require regular payments. The CFPB found all five companies have sent people to collections, which can have a big impact on your credit score.
Several of the companies do also have late fees if you miss payments, but the CFPB says they're often lower than credit card fees might be.
However, the bureau's biggest concern is overstretching, taking on too may of these smaller payments, and having to miss paying important bills. Several of the people we spoke with agreed.
"I think people should only spend the money that they have," said Annie. "It's like spending next month's paycheck. You're going to forget about it, like subscriptions."
The CFPB said these findings could help them create guidelines or rules to protect customers and hold the BNPL industry to standards like the ones other lenders are required to abide by.
Buy Now, Pay Later Companies Respond
NBC 7 Reached out to each of the companies that gave data to the CFPB for its report. Here are their responses:
Since our founding over a decade ago, Affirm has operated on the principles of transparency, putting people first and aligning our interests with those of consumers. Our top priority is empowering consumers by providing a safe, honest, and responsible way to pay over time with no late or hidden fees. This includes underwriting every transaction before extending credit, giving consumers control over their privacy choices, and providing consistent and transparent disclosures at checkout.
Today represents a big step forward for consumers and honest finance, and we are encouraged by the CFPB’s conclusions following their review. We will continue to engage with all of our stakeholders as we advance our mission to deliver honest financial products that improve lives.
Afterpay, referred NBC 7 to the statement from the Financial Technology Association which said in part:
The CFPB report states that Buy Now Pay Later delivers clear consumer benefits, from lower costs to a simple repayment structure. According to the report, Buy Now Pay Later “imposes significantly lower direct financial costs on consumers than legacy credit products.” The CFPB also found that “BNPL is typically a no-interest product…fees are relatively low in absolute terms and do not compound as does credit card interest.”
The CFPB’s findings show consumer preference is rapidly shifting away from high interest credit cards to no-interest BNPL which promotes responsible spending through short term repayment plans. BNPL volumes are less than 1% of credit card use in the US, and total US BNPL purchase volumes are not even a quarter of credit card fees and interest charged to Americans at $120bn annually. As a licensed European bank, Klarna is committed to financial wellbeing and protecting consumers through industry innovation and proportionate regulation. Low-cost, low-risk, no-interest products like BNPL should not fundamentally be regulated in the same fashion as high-cost credit products which rely on consumer fees and revolving debt.
We’re pleased the CFPB recognized the value BNPL gives to consumers, including access to credit, ease of use, and lower costs, particularly going into challenging economic times. The CFPB’s observations seem to be on balance, reasonable, and fair. We do not have any further specific comments at this time.