Convenience Laced with Pain: The Buy Now, Pay Later Story
Plus, OppFi seeks permission to keep charging triple-digit interest rates on short-term loans
You know the products — Klarna, AfterPay, Sezzle, Affirm, even PayPal “Pay in 4.” They offer you the chance to buy what you need or want right now and pay for it over a short period of time, usually in four total payments.
This type of purchasing power boost can be especially helpful in a time of rising inflation. You get the product you want now at today’s price and manage the total purchase over time. It’s generally free, so it seems great.
Consumer groups, however, are warning that so-called “Buy Now, Pay Later” products actually come with a cost — and that cost can be high in terms of fees and even hits to your credit report.
Here are some specific concerns outlined by consumer groups:
First, U.S. PIRG: 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.
Next, a survey conducted by DebtHammer: 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.
Recommendations from advocates:
Do your homework before agreeing to a BNPL program. Be aware that some BNPL programs charge interest and others charge late fees. Be sure you always have adequate funds in your accounts to make BNPL payments, which may be at irregular intervals from regular credit card statements. Also, you may have agreed to autopay withdrawals, which may cause overdrafts on your account.
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OppFi’s Complaint? They Can’t Charge Triple Digit Interest on Loans
OppFi recently reached a settlement in DC because its loans offered there exceeded the District’s rate caps.
The DC settlement resolved a lawsuit filed by the Office of the Attorney General (OAG) against OppFi for misrepresenting its high interest loans as fast and easy cash and falsely claiming that its loans would help struggling consumers build credit. Instead, from at least 2018 until May 2020, OppFi provided loans to most District residents at a 160% APR — more than seven times the District’s 24% rate cap.
In spite of the DC settlement (or perhaps because they were actually held accountable) - OppFi is now suing in California claiming they should be exempt from that state’s lending laws:
In a statement announcing the action, OppFi indicated it hopes to continue offering loans at rates exceeding California’s interest rate cap of 36%.
The loans made through the OppFi platform are constitutionally and statutorily exempt from California’s maximum interest rate caps because the loans are made by FinWise Bank, Member FDIC, a state-chartered bank located in Utah. It is well-settled federal law that permits state-chartered banks to export the interest rates allowed in their chartering state to any other state in the country.
OppFi claims the legal relief is necessary because the Commissioner of the California Dept. of Financial Protection and Innovation has “threatened” to enforce that state’s rate caps.