Smartphone and Buy Now, Pay Later app

Will buy now, pay later mean pain later?

In a new report, we question whether “Buy Now Pay Later” plans make “no fees or interest!” claims that may not be true. We find that you might be billed for canceled or backordered items, but neither the merchant nor the BNPL provider may take responsibility. You can file a comment in the CFPB’s BNPL inquiry until March 25th. Get our BNPL tips.

Cover image: Courtesy iStock by B4LL, used under license

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Ed Mierzwinski
Senior Director, Federal Consumer Program

Author: Ed Mierzwinski

Senior Director, Federal Consumer Program

202-461-3821

Started on staff: 1977
B.A., M.S., University of Connecticut

Ed oversees U.S. PIRG’s federal consumer program, helping to lead national efforts to improve consumer credit reporting laws, identity theft protections, product safety regulations and more. Ed is co-founder and continuing leader of the coalition, Americans For Financial Reform, which fought for the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, including as its centerpiece the Consumer Financial Protection Bureau. He was awarded the Consumer Federation of America's Esther Peterson Consumer Service Award in 2006, Privacy International's Brandeis Award in 2003, and numerous annual "Top Lobbyist" awards from The Hill and other outlets. Ed lives in Virginia, and on weekends he enjoys biking with friends on the many local bicycle trails.

A new U.S. PIRG Education Fund report looks at "Buy Now, Pay Later" consumer complaints to the Consumer Financial Protection Bureau and the Better Business Bureau (BBB). A typical BNPL business model (“Pay in Four”) is to pay for your purchase over 4 bi-weekly payments. Merchants pay for the service through a "merchant discount" or swipe fee, similar to but slightly higher than the fees merchants pay to accept credit cards.

We question whether “Buy Now Pay Later” plans make “no fees or interest!” claims that may not be true. We find that you may be billed for canceled or backordered items, but neither the merchant nor the BNPL provider may take responsibility. We find that late payments may result in late fees. You may spend money you don’t have. 

"Buy Now, Pay Later” shouldn’t mean “Buy Now, Pain Later.”

You can complain to CFPB about BNPL or any financial product or company anytime. You can also file a comment in the CFPB’s BNPL inquiry until March 25th. Get our PIRG BNPL tips here.

Our report, The Hidden Costs of Buy Now Pay Later, shows that its hidden fees, interest and debt collection problems can harm consumers. We also found that consumers face problems with customer service. California regulators and other regulators, worldwide, have begun to take action. The CFPB recently issued orders to 5 leading BNPL providers to provide details of their operations: 

“The CFPB is concerned about accumulating debt, regulatory arbitrage, and data harvesting in a consumer credit market already quickly changing with technology. ‘Buy now, pay later is the new version of the old layaway plan, but with modern, faster twists where the consumer gets the product immediately but gets the debt immediately too,’ said CFPB Director Rohit Chopra.”

The CFPB then followed up with its public comment request.

Among our report’s key findings:

  • Complaints to the CFPB have risen sharply from 2019 to the beginning of 2022.
  • By issue, leading complaint categories were “incorrect information on your (credit) report,” “attempts to collect debt not owed” and “problem with a credit reporting company’s investigation into an existing problem.
  • Also, a review of Better Business Bureau (BBB) company profiles reveals that, as of March 4th, several large BNPL providers are “not BBB accredited,” which raises similar concerns.

A complaint to the CFPB is illustrative of a typical BNPL problem (excerpt, read full complaint here): being billed for products that are canceled and never delivered:

“...I placed an order in XX/XX/2020 for two separate custom-made couches to XX. …on XXXX the loan went onto my Affirm account for both couches […] and I began the $ XXXX payments for both couches plus interest from the beginning of the loan because Affirm had included the full amount for both couches plus interest into the loan and payments […] Two letters I have from XXXX XXXX Management and Accounting show the item production was cancelled at some point as product unavailable. They show that Affirm was never charged the $ # XXXX for the second couch. […] Over the last few months I have had collections calls, texts, emails and notices of delinquent payment, after each rep said I should be getting a refund of the over {$1000.00} I paid toward the second couch that was never produced, shipped or delivered.”

 The report also highlights CFPB staff concerns:

“BNPL products don’t have the same protections as other types (of) credit: Like a credit card, you can use BNPL to make a purchase and pay for it later over time. However, BNPL loans currently lack the consumer protections that apply to credit cards.” (emphasis added)

Those concerns were echoed by and added to by consumer advocacy groups in testimony and comment letters. From a group comment letter to CFPB (that included several state PIRGs): 

“However, 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.”

BNPL plans were first rolled out by new non-bank “fintechs.” Banks and credit card companies are responding with their own competing offerings, with different business models. As the market evolves, we are also concerned that merchants may demand to pay lower fees, which will likely result in changes to the “Pay in Four” business model. Consumers may get squeezed even more – higher penalties, less customer service, fewer consumer protections -- if this happens.

That’s why we’re encouraged by the CFPB’s in-depth inquiry into this “new” product. But is it really so new? Shouldn't it be immediately regulated by the CFPB under existing credit card and other regulations?

Remember what we said at the top of the blog: You can complain to CFPB about BNPL or any financial product or company anytime. You can also file a comment in the CFPB’s BNPL inquiry until March 25th. Finally, get our PIRG BNPL tips here.

Buy Now, Pay Later plans shouldn’t mean pain later.

I'll close with the last line of our report. It's important. for so many reasons:

"Finally, we maintain our concerns that the vast data collection and monetization engines run by Big Tech firms are designed to fuel an explosion of buying and an increase in consumer debt for stuff we don’t need and can’t afford and, too often, end up throwing away." 

Ed Mierzwinski
Senior Director, Federal Consumer Program

Author: Ed Mierzwinski

Senior Director, Federal Consumer Program

202-461-3821

Started on staff: 1977
B.A., M.S., University of Connecticut

Ed oversees U.S. PIRG’s federal consumer program, helping to lead national efforts to improve consumer credit reporting laws, identity theft protections, product safety regulations and more. Ed is co-founder and continuing leader of the coalition, Americans For Financial Reform, which fought for the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, including as its centerpiece the Consumer Financial Protection Bureau. He was awarded the Consumer Federation of America's Esther Peterson Consumer Service Award in 2006, Privacy International's Brandeis Award in 2003, and numerous annual "Top Lobbyist" awards from The Hill and other outlets. Ed lives in Virginia, and on weekends he enjoys biking with friends on the many local bicycle trails.