Buy now, pay later Shopping isn’t all it says it is – Vox.com | Vette Leader

The thing about buy now, pay later is that the later part always comes. Sometimes the pay is more than you think you’re signing up for, and often for things you shouldn’t have bought in the first place.

The Buy now, pay later – or BNPL – trend has been on the rise for years, fueled by companies like Afterpay, Klarna and Affirm. Virtually every time you buy something online lately, there’s an offer to pay in installments. At first glance, it seems simple enough: you make a purchase, and instead of paying the whole thing upfront, it’s split into four interest-free payments, usually every two weeks. TikTokers present it as a smart way to shop on a budget, an option to get the things you want and need even when you just don’t have enough to pay the entire bill. Plus, hey, you’re not dealing with the nasty credit card companies.

If this all sounds a little too good to be true, that’s because it is. The overpriced dress you just bought is still overpriced, but the lower payments make you feel like you have to spend more money on it. You’re still walking around in pants that don’t technically pay off.

“It’s marketed as interest-free, but consumers may find that they end up being charged more than they think,” said Nadine Chabrier, senior policy and litigation counsel at the Center for Responsible Lending. “Should they lose track of their payments or pay for multiple purchases now and later, they can incur chargeback fees, missed payment fees, account reactivation, rescheduling, and all kinds of hidden fees that they weren’t aware of to begin with.” ”

BNPL companies often don’t conduct thorough checks on consumers’ creditworthiness, which means people end up in debt they can’t pay. If someone messes up, they can be hit with late fees and have their credit score hurt. And it’s easy to screw up when people take out multiple loans or just aren’t used to paying bi-monthly bills as opposed to other bills. If a consumer buys something from BNPL and the product isn’t what it’s supposed to be, has a defect or needs to be returned, it can be more complicated to get your money back than with other payment methods. The ability to pay in installments encourages consumers to buy more than they would otherwise.

Currently, many BNPL companies find themselves in a kind of regulatory gray area, circumventing laws that apply to more traditional lenders. There is a push among consumer advocates and in states like California and Massachusetts to scrutinize BNPL companies and bring them into line, and the Consumer Financial Protection Bureau (CFPB) is also investigating them. It’s just an industry hoping to secure a victory in the regulatory whack-a-mole.

“There’s always these new companies saying, ‘We’re different, we’re new, we’re fast, and regulators don’t know how to regulate us because we’re so new and fast and technical or whatever. ‘” said Chi Chi Wu, attorney for the National Consumer Law Center. “And you know what? No.”

The cost of the deferred payment

Buy now, pay later Businesses make a lot of their money from merchant fees, which means they take certain cuts off purchases — say, 2 to 8 percent. That’s more than taking credit cards, but as Chabrier explained, retailers are willing to pay because the ability to pay in installments increases basket size. “They’re actually enticing people to buy more than they normally would because they’re splitting it up,” she said.

You could pause more if you spent $100 on the spot than if you spent $200 split into four $50 payments.

These companies can also make money when consumers who use them make mistakes, Chabrier noted. “If, like a lot of people, you make five purchases now, pay later, and make one wrong move, you’re going to get hit with these unexpected charges,” she said. B. Late charges if you miss a payment. “And maybe an overdraft fee from your bank.”

These false moves are common. A recent survey by LendingTree found that 42 percent of Americans who took out a BNPL loan have made at least one late payment on it. According to the Wall Street Journal, BNPL companies are seeing an increase in bad debts and late payments.

Consumers using BNPL services tend to be younger and many are black. Some also have subprime loans, which means they may have trouble accessing traditional forms of credit. BNPL companies say they offer financial inclusion, that they give credit to people who can’t get it elsewhere. That may be true in many cases, but the line between predatory and progressive has been blurred. A study by TransUnion found that BNPL customers have more credit products, such as credit cards, store cards and installment loans, than the general “credit-active” population. Lenders in the industry often have no idea whether the consumers they work with are actually solvent.

“By saying ‘buy now, pay later’, you don’t take into account the other financial obligations consumers may have,” said Elyse Hicks, consumer policy adviser at Americans for Financial Reform. You don’t have to search the web for long to find stories of Millennials and Gen Z indebted over their heads because of BNPL, and with inflation and the current precarious economy, things could get worse.

We still don’t really know how to handle or regulate credit

How to deal with credit – who should get it, how much should be charged for it, what happens to people who are left out – is a difficult subject. We want people to be able to buy things, and credit is a key force in the economy. Millions of people across the country are unbanked and excluded from the more conventional credit system. We also don’t want people to get hurt because of debt they can’t get out of or be taken advantage of by lenders because they don’t understand the terms.

Consumer advocates aren’t necessarily arguing that BNPL shouldn’t exist, but they say it needs more scrutiny and regulatory oversight and that people should get a better idea of ​​what they’re getting into. Consumer protection laws such as the Truth in Lending Act, which protects consumers from inaccurate and unfair lending practices, are not yet applied to BNPL. (There’s a reason BNPL companies make four payments — the 1968 Act takes effect on consumer credit once it’s split into five.)

Exactly what BNPL means for consumers “is still not clear,” said Robert Lawless, a University of Illinois law professor who specializes in consumer finance. He cited payday lenders and buy here, pay here car people as examples, both of which at first glance appear to offer useful solutions for people with bad or invisible credit. “But we know the facts that these are very abusive industries in application,” he said. There have been many consumer finance innovations over the years that have claimed to be in the interests of consumers. “I don’t think we have enough experience yet to know where to buy now, pay later.”

He pointed out that the problem of companies trying to circumvent credit and debt laws is hardly new. In the 20th century, lenders and businesses tried to circumvent usury laws that dictated interest rates by claiming they didn’t charge interest but based prices on a “time-price difference,” Lawless said, meaning they charge a price require one product to be paid for in advance and another when paid for in installments over time. “If that sounds like bullshit, that’s because it is. It’s just interest under another name.”

There are countless examples of tactics and products that attempt to circumvent financial rules and regulations. There are so-called rent-a-bank arrangements, where expensive lenders try to circumvent government interest rate caps, and earned-wage access products — essentially payday advances — that companies argue don’t technically fall under the truth of the lending act They because they don’t have fees (instead, some of these companies ask for tips, for example). “It’s the whole continuum of novel products and lack of regulation that needs to be addressed,” Chabrier said.

Most of the time, regulators catch up and these issues get fixed — but it takes time. With offers like “buy now, pay later”, many consumers are now losing their (only partially paid for) shirts. It’s worth noting that Apple is about to offer a BNPL product as well. “What happens when you convince a generation to spend more than they can afford?” Scott Galloway, NYU marketing professor and podcast co-host pivot pointshe recently asked in New York magazine. Maybe we’re just finding out.

As Bloomberg recently outlined, faced with the threat of regulation, economic uncertainty and indebted consumers, many companies in the industry are already struggling and their values ​​are plummeting.

BNPL companies may be in a difficult position now, as are so many of their clients already.

We live in a world that is constantly trying to trick and trick us where we are always surrounded by scams big and small. It can feel impossible to navigate. Join Emily Stewart every two weeks to see how our economies control and manipulate the average person. Welcome to The big pressure.

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