The Hidden Dangers of ‘Buy Now, Pay Later’ Apps


But consumer advocates are skeptical. Marisabel Torres, California policy director at the Center for Responsible Lending, says “Buy Now Pay Later” is a misnomer. These are short -term loans that are paid in installments, with terms that can vary. Some include late payment but no interest; others charge interest. Some report to credit bureaus and others do not. Consumer advocates say the variety of offers can be even more confusing for young users with little credit history or financial knowledge.

Afterpay, for example, does not charge interest on BNPL services, but it is collected A $ 87 million ($ 64 million) in late fees from users for the 12 months ending June 30. Affirm does not charge late fees but collects $ 200 million in interest payments from consumers in the same 12 -month period.

“Regulators need to look under the hood to see how much these companies make from the fact that they can charge a lot of late fees,” Torres said. High default rates and user debt can communicate a business model designed to profit from insolvency. “We’ve seen debt flood the market in the past when no one cared,” he said. “That ended up being bad for consumers or the economy.”

Lawmakers and regulators have noticed. Earlier this month, the House Financial Services Committee heard from consumer advocates about the potential risks to consumers of services. Torres and other witnesses called for stricter regulation and more data on how often users don’t change, the potential long-term impact on credit scores, and stricter rules about to approve credit.

The Consumer Financial Protection Bureau in July issued and blog post to guide consumers. Among other things, the post warns, “Don’t overspend your finances.”

“We have the experience of working with regulators to build on many of the protections we already have from the beginning,” said Harris Qureshi, head of public policy at Afterpay. He noted that the service freezes a user’s account if they fail to pay and offers a “trouble line” for users who are unable to pay after unexpected issues.

In a statement to WIRED, an Affirm spokesperson said the company does not charge late fees, tells consumers their total cost up front, and checks users before they are approved for financing to BNPL.

“We understand and support reasonable regulation and follow the regulations” enforced by state and federal agencies, a Klarna spokesperson said in an emailed comment. “We do not, however, believe that interest-free products should be regulated in the same way as high-interest products.”

Merchants, too, pay fees for services, usually even a flat fee of, say, 30 cents per purchase, a commission of almost 4 to 6 percent on the purchase, or sometimes both. It is, too, variable. Merchant fees and transactions comprise almost half of Affirm’s income but more than 90 percent at Afterpay’s. But other entrepreneurs love the services.

“When I started using it, I sold a lot of products,” says Brittany Aaron, who sells bath and body products at her online shop, Angel Kisses. Since offering Shop Pay and Afterpay early last year, Aaron says sales have grown nearly 30 percent, with nearly 70 percent of users purchasing items using BNPL’s services.

Aaron says the fees he pays for the services are a small price to pay for the huge increase in shoppers ’baskets. Since offering the service, BNPL shoppers have spent more on each trip. A recent survey from Lending Tree found a quarter of BNPL users admitted that they bought more use the service than they would have if they paid out of pocket.



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