As Buy Now, Pay Later Explodes, New Consumer Protection is On the Way
CFPB extends some key protections to popular debt product
One key sign that the oligarchy’s economy is not working for many is the prevalence of Buy Now, Pay Later short-term debt.
While this type of debt - a “pay in four” loan that typically carries no fees or interest - can have some benefits in terms of managing cash flow, it can also be quite dangerous for consumers.
If payments are missed, fees can creep in - and consumers have reported missing payments on other bills in order to stay current on their BNPL loans.
Additionally, while BNPL does not help consumers build credit, it can hurt a person’s credit rating if payments are missed.
So, it’s good news that the Consumer Financial Protection Bureau (CFPB) is extending some key protections to this growing product.
The newly-extended protections include a right to dispute charges and demand a refund from the lender after returning a product purchased with a Buy Now, Pay Later loan.
“When consumers check out and choose Buy Now, Pay Later, they don’t know if they will get a refund if they return their product or whether the lender will help them if they didn’t get what was promised,” said CFPB Director Rohit Chopra. “Regardless of whether a shopper swipes a credit card or uses Buy Now, Pay Later, they are entitled to important consumer protections under longstanding laws and regulations already on the books.”
These basic protections are a helpful start.
That said, when one of the fastest-growing segments of the BNPL market is groceries, alarm bells should be sounding.
Of course, the oligarchs who profit from short-term debt have no interest in changing this landscape - the product allows merchants to reap ever-greater profits at rates higher than inflation.
A recent report profiles the users of BNPL:
This debt burden is likely to be borne by those least able to afford new debt, according to the Boston Fed:
BNPL users tend to be financially fragile: They tend to have low credit scores, minimal liquid assets, high incidences of past bankruptcy filings, and revolving debt on their credit cards.
Those massive profits at Kroger, Publix, and Walmart are being financed by short-term loans for family necessities by people at the lower end of the financial spectrum.
Tips Becoming Guaranteed Revenue for Fintech Lenders
A recent case against fintech payday predator SoLo Funds highlights the unpleasant reality of tip-based lending products. The tips aren’t really optional - and the interest rates tips create often creep well into triple digits.
“The CFPB is suing SoLo for using digital trickery to hide interest and fees on its online loans,” said CFPB Director Rohit Chopra. “SoLo has had repeated run-ins with state regulators, and we are putting a stop to their fake tipping scheme.”
Consumer advocates say the case against SoLo has implications for other fintech lenders, including those in the earned wage access space:
“So-called ‘earned wage’ advance providers and other providers of fintech payday loans also use dark patterns and multiple strategies to make tips almost as certain as required fees,” said Saunders. “A tip is something you pay to a human being for good service; a ‘tip’ paid to a payday lender is just a disguised form of interest that can violate federal and state laws.”