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Defaults and Late Fees on the Rise as Buy Now, Pay Later Grows in Popularity
Plus, a warning about EasyPay
Buy Now, Pay Later — once the convenient way to “pay in four” for beauty and apparel — has expanded its reach into nearly every sector. This includes groceries.
Jason Mikula of Fintech Business Weekly breaks down a recently released report from the Consumer Financial Protection Bureau (CFPB) that details the impact of BNPL products on the market and on consumers.
Here are some key takeaways:
The total dollar amount of loans originated increased 11x from 2019 to 2021. That’s big growth for a relatively new industry and signals BNPL’s popularity with consumers.
The average loan size is relatively small — currently sitting at $135. In a typical “pay in four” arrangement, then, the customer would purchase the product with $33.75 up front and three additional payments (usually two weeks apart). So, over six weeks, a customer would fully pay for their purchase.
Borrowers often use multiple BNPL loans to manage cash flow. The report showed that in the fourth quarter of 2021, 15.5% of users used five or more loans.
Defaults increased by nearly 30% from 2019 to 2021 — still, these defaults only amount to about 4% of all BNPL loans. More than 10% of borrowers had at least one late fee in 2021 — and this rate continues to increase.
The bottom line?
Buy Now, Pay Later is here and here to stay. The income generated is significant, customers are using it (a lot), and it allows merchants to sell more product — which is especially important in an inflationary climate.
That said, there are risks and consumers should understand them. A recent survey showed that 1 in 5 consumers who took out a BNPL loan regretted it after the fact.
This may be due to the fact that managing BNPL loans (especially if you have more than one) can lead to trouble balancing the rest of one’s obligations.
As that survey indicated:
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.
For its part, the CFPB has indicated the next steps are to introduce some regulation that addresses key concerns with BNPL products. These concerns include:
lower consumer protections vs. those for debit/credit cards (returns, disputes, chargebacks)
lack of consistent consumer disclosures
‘data harvesting,’ specifically how BNPL providers use customer data outside of lending transactions, including for advertising, sharing with merchants, or discounting strategies
furnishing data to the bureaus, particularly to mitigate risks from ‘loan stacking’ and to better monitor sustained use across multiple BNPL providers
consumer repayment options, specifically whether or not users are required to use automatic repayments
BNPL providers’ re-presentment practices, particularly when these cause borrowers to incur overdraft or NSF fees
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When it Comes to Car Repair Loans, EasyPay Brings the Pain
EasyPay Finance is making the news and not in a good way. 8 News Now in Las Vegas has noted that auto repair lender EasyPay is teaming up with Utah-based TAB Bank to offer predatory auto repair loans with rates up to 189%.
If you’re thinking about financing an auto repair loan, you may want to read the fine print. A Utah-based online bank was recently flagged by the National Consumer Law Center (NCLC) for issuing up to 189% interest in loans.
The company, EasyPay Finance, works in tandem with TAB Bank, which is based in Ogden, Utah. The bank offers financing through auto repair and tire shops across the country.
I’ve written before about EasyPay and TAB Bank and the predatory partnership that allows them to pilfer from desperate borrowers.
The story out of Nevada is just one more reminder: When you need a loan to cover the cost of an auto repair, stay away from EasyPay.
“A car repair can be a devastating expense, and financially fragile families don’t need predatory lenders amplifying the damage. EasyPay and its rent-a-bank partner TAB Bank are preying on people in a way that exploits the centrality of cars in American society. For most people, having a car that runs well is essential to their daily economic life and to managing a family,” said Elyse Hicks, Consumer Policy Counsel at Americans for Financial Reform.