Federal agency plans tighter regulation of ‘buy now, pay later’ companies

BOSTON — More people are starting to shop using the “buy now, pay later” option, which became popular during the pandemic. These businesses don’t have to follow as many rules as other lenders, but a federal agency plans to change that, which could mean major changes for shoppers.

Joyous Watson said she bought pants and shirts for about $47. She used one of the most popular “buy now, pay later” lenders, Afterpay.

“(I’ve) used them before. Had great experiences,” she said.

“Buy now, pay later” lenders pay for your item and you pay them back, usually in four installments. There’s no interest, but there are late fees.

“It’s pretty more convenient, I guess, than buying it on credit, or having to have your credit score pulled or something like that,” said Watson.

“Particularly because of inflation. It seems like more and more people are using this because they get to pay smaller amounts for things they want, each couple of weeks,” Somerville-based ConsumerWorld.org editor Edgar Dworsky told Boston 25 News.

But Dworsky says the concept has some pitfalls when it comes to consumer protection.

“Well, you may lose some of your consumer rights that you typically get with the credit card, the chargeback goods, if they don’t arrive to chargeback goods if they’re defective,” Dworsky said.

The Consumer Financial Protection Bureau has concerns about “buy now, pay later” as well. The bureau says:

- It’s usually harder for you to dispute charges than when you use credit cards.

- Some lenders tack on multiple late fees on the same missed payment.

- Some track users’ shopping habits and sell the data.

- Lenders tend to say yes to people who shouldn’t qualify, and who may already be racking up a lot of similar loans.

The CFPB is eyeing more rules to combat these concerns and treat these lenders more like credit card companies.

Watson says she worries the lenders might make it harder for customers to land “Buy Now, Pay Later” loans.

When asked about the idea of more regulation, Afterpay emailed this response:

“Afterpay follows each individual merchant’s policies for returns and has no control or management over how merchants process their returns. Whether it’s for in-store or online purchases, returns are subject to the merchant’s policy and can typically

be found on their website or by contacting them directly. When a customer makes a return and the merchant processes a refund, it will automatically be reflected in a customer’s payment schedule seen on their Afterpay portal, which can take up to 10 days to be reflected in their Afterpay account. Due to privacy purposes, Afterpay is unable to issue a refund to a shopper on behalf of the merchant.

“In regards to the CFPB inquiry, Afterpay welcomes efforts to ensure that there are appropriate regulatory protections for consumers in the diverse BNPL industry, and that providers are meeting high standards and delivering positive consumer outcomes while protecting their data. Afterpay provides consumers with better transparency, lower costs, and better budgeting tools than traditional forms of credit and promotes responsible spending.

“Afterpay also promotes and enables responsible credit use by pausing accounts from future purchases if a payment is late, capping late fees, and not charging interest. These built-in safeguards mean that Afterpay customers are actually half as likely to be delinquent than credit card customers.”

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