In recent years, a new payment method called “buy now, pay later” (BNPL) has become popular for online shoppers. This option allows consumers to split their total purchase into four interest-free automatic payments over six weeks. While BNPL can be convenient for those who want to avoid credit card debt, it’s essential to understand the potential risks involved.
Many BNPL lenders, such as Affirm, Klarna, and Afterpay, offer longer-term payment plans that may come with high-interest rates. Ted Rossman from Bankrate warns that failing to make timely payments on these plans could negatively impact your credit score, similar to a credit card.
The Consumer Financial Protection Bureau (CFPB) has been examining the impact of BNPL transactions on consumers and has recommended that these transactions receive the same level of protection as credit card transactions. This includes requiring lenders to address customer disputes, pause payment obligations during investigations, issue credits when necessary, and provide detailed billing statements.
Upon the CFPB’s announcement, Klarna expressed confusion over the decision, stating that regulating BNPL like a credit card is comparing “apples with oranges.” Affirm, on the other hand, welcomed the move towards consistent industry standards, many of which align with their current practices to offer transparency and choice to consumers. Afterpay has not released a statement on the matter.
Consumer Domenica Quintana shared her positive experience with BNPL but emphasized the importance of being cautious with such payment methods to avoid future financial burdens. She acknowledged the changes in regulations and welcomed them as a necessary step to protect consumers.
The CFPB is inviting public feedback on the new rule until Aug. 1 to gather insights and address any areas that require further clarification. This opportunity allows consumers to voice their opinions and contribute to shaping the future of BNPL regulations. By staying informed and participating in the feedback process, individuals can ensure that their interests are represented in the evolving landscape of online payment options.