On July 6, the CFPB posted a blog titled, “Should you buy now and pay later?” describing how buy now pay later (BNPL) deferred payment options work, and the benefits and risks that come with BNPL. Generally, if a consumer selects the BNPL option at an online checkout, “the purchase is . . . split into a payment schedule - typically four fixed payments made bi-weekly or monthly until the balance is paid in full.” The CFPB points out that transaction approval takes minutes, with no interest, finance charges, or hard credit inquiries.
The CFPB cautions consumers to consider the following risks before selecting the BNPL purchase option:
- Because you can qualify for BNPL without passing a hard credit inquiry, make sure you have a good sense of your finances and whether the payments will fit within your budget.
- Be sure to research whether or not a BNPL company reports to credit bureaus before using their service.
- BNPL products can carry late fees.
- BNPL products do not have the same dispute protections as credit cards.
- Compare BNPL to other payment options that let you repay purchases over a longer time, though some of these loans charge interest and may also charge late fees.
- For servicemembers, be aware of state and federal resources regarding consumer protections, and submit a complaint to the CFPB for issues with BNPL, or any financial product or service.
Putting it Into Practice: The timing of this blog post is not surprising as the use of BNPL products has surged during the COVID-19 pandemic. Noting the sharp increase in the use of BNPL products, the CFPB cited to a recent survey where 42% of American consumers have used BNPL at least once. The CFPB post comes as the FTC expands the use of the Restore Online Shoppers’ Confidence Act of 2010 (ROSCA) to target online sellers for failing to disclose all material terms and obtain informed consent from consumers before charging them for products and services. Companies doing business online – whether BNPL or not – would be well-advised to review the CFPB’s and FTC’s guidance to ensure that business practices do not run afoul of regulatory expectations.