Consumer Alert: CFPB opens investigation into the Buy Now Pay Later industry
ROCHESTER, N.Y. (WHEC) — Four more shopping days until Christmas. Did you bust your budget yet? There’s a very popular way to get those gifts now and pay later. Last month I warned that consumers should be cautious when using these loans. It’s easy to get in over your head with these products.
That’s one of the reasons the Consumer Financial Protection Bureau (CFPB) just announced it’s opening an investigation, and boy, these loans are popular. So much so, Equifax just announced its going to start including your buy now pay later loan information on your credit report.
If you’ve shopped online, you’ve seen the companies offering big and small loans at checkout. Companies like Affirm, Afterpay, Klarna, Paypal and Zip are now big players in the BNPL market and you see big and small loans offered on big and small retail sites.
Recently I found a remote control car on Poshmark that was just $50, but Affirm offered customers a payment plan. You can spread the payments over three months interest free by paying just $16.67 per month, but giant retailers are in the BNPL game too. I found a $500 ride-on car listed by a third party seller on Walmart’s site.
Again, Affirm is prominently featured offering payments of 12 monthly payments of 46-30 at 20% interest. Terms are all over the place with these companies. In Affirm’s fine print, it tells you that interest rates range from zero to 30%.
That’s the worry for consumer advocates. Are the terms clear? Are these new loans abiding by applicable consumer protection laws? Are they encouraging consumers to take on more debt? And what are they doing with all your data? Those are the questions the Consumer Financial Protection Bureau is trying to answer.
You may have used one of these loans while holiday shopping. Affirm said last month that its users have doubled year over year, with 8.7 million Americans now choosing to buy now pay later through their service.
These products do have their advantages. Many 6 to 8 week plans are interest free, they’re easy to get with only a soft credit check and if you pay them off on time, they’re a great ways to help improve your credit score. But if you’re late, the fees can be brutal. With these products, like any loan, you have to read the fine print. And that’s your consumer alert.