Why are Attorneys General Concerned about Buy Now, Pay Later?
In response to an inquiry by the Consumer Financial Protection Bureau (CFPB), 20 Attorneys General expressed concerns about the proliferation of buy now, pay later products such as AfterPay, Klarna, Sezzle, and others.
Led by Illinois Attorney General Kwame Raoul, the AGs said:
“Buy-now-pay-later loans can seem like an affordable option for consumers who wish to divide one purchase into multiple payments. While these loans may appear to make payments more manageable, they may also result in people accumulating debt and ultimately paying more,” Raoul said. “I appreciate the CFPB’s inquiry into this industry, and I encourage the agency to ensure companies are not utilizing practices that trap people into a cycle of debt.”
The group offered a warning about the impact of buy now, pay later products.
In addition, while some BNPL providers do not charge regular fees or interest, most charge late fees and report late or missed payments to credit bureaus. As a result, borrowers may accumulate more debt and end up paying more when utilizing BNPL loans.
The concerns expressed by the AGs echo concerns voiced by the U.S. Public Interest Research Group, which noted:
Our findings, based on a review of complaints to the Consumer Financial Protection Bureau (CFPB) and the Better Business Bureau (BBB), show that hidden fees, interest and debt collection problems can harm consumers. We also find that consumers also face problems with customer service.
Further, a survey by the nonprofit DebtHammer found that many consumers ultimately regret using buy now, pay later products:
32% of Buy Now Pay Later plan users have had to skip paying an essential bill such as rent, utilities or child support in order to make their payments. Even after that, 30% report that they’ve struggled to make their payments.
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