Consumer Advocates Call for Regulation of Buy Now, Pay Later Loan Products

Credit Products Could Create Debt Traps

The National Consumer Law Center (NCLC)recently presented testimony about “buy now, pay later” (BNPL) products before the House Financial Services Committee’s Task Force on Financial Technology. The bottom line: These products — such as AfterPay, PayActiv, and other BNPL and earned wage access (EWA) — often carry high fees/interest rates and can lead to a debt trap or persistent cycle of borrowing.

“Shiny fintech garb does not remove the need for basic consumer protections to ensure that credit is affordable, responsible, transparent, and fair,” said Lauren Saunders of NCLC. “We must keep a close eye on how products evolve, as products may not stay free or low-cost and the ultimate business model may not always be what it appears.

“Buy-now-pay-later products, if affordable and truly free to the consumer, may help consumers manage larger purchases without the long-term debt and high costs of credit cards. But some BNPL products may have deceptive and abusive profit models built on the expectation of late fees from struggling consumers.

The BNPL market is exploding. Nearly every day there is an announcement about a new BNPL product or partnership. Companies with BNPL products include AfterPay (now acquired by Square), Affirm, Klarna, Sezzle, Splitit and Zip (previously QuadPay). Banks and established payments players like Capital One, Goldman…