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It's Not as Cheap as Stealing: The Dark Side of Buy Now, Pay Later
Plus, a payday predator (ACE Cash Express) faces legal trouble
I’ve written quite a bit about the popular fintech credit tool known as Buy Now, Pay Later (BNPL).
Essentially, these plans — offered at point of sale in online or in-store transactions — allow consumers to buy something now for only 25% of the total purchase price and then make 3 additional payments (usually 2 weeks apart) until the full price is paid. PayPal’s “Pay in 4” is an example. Brands like Klarna and Afterpay also play in this space.
The reality of BNPL is that it can wreak havoc on a consumer’s bank account. Especially if, as is typical, they end up with more than one BNPL plan at a time.
In fact, one 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.
Maybe that’s why a website known for satire — The Onion — has taken a look at BNPL.
Here’s their take on these products:
Fun to not pay for stuff you buy.
Now is now and who even knows when later will be?
Collection agencies known for their compassion and understanding.
App could lose funding and fold before users have to pay.
There only a few, very rare instances when buying something you can’t afford ultimately doesn’t work out well.
Chance that future you may also not have any money.
Humiliation of being $10,000 in debt to something called “Klarna.”
Makes it financially stupid NOT to buy a waterbed.
Detracts from adrenaline rush of having credit card declined.
Still not as affordable as stealing.
Seems the satirists have hit the mark.
MORE ON BUY NOW, PAY LATER
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Turns Out, ACE Cash Express is Not Very Nice
Payday lender ACE Cash Express is facing a lawsuit from the Consumer Financial Protection Bureau (CFPB) for alleged misdeeds including concealing free repayment plans and unlawfully debiting funds from customer bank accounts. The CFPB alleges that the practices generated at least $240 million in additional fees for ACE while keeping customers in a cycle of debt.
In a statement, the CFPB said lawsuits like this one help hold financial wrongdoers accountable:
“Deception and misdirection allowed ACE Cash Express to pocket hundreds of millions of dollars in reborrowing fees,” said CFPB Director Rohit Chopra. “Today’s lawsuit is another example of the CFPB’s focus on holding repeat offenders accountable.”
This suit is not the first time ACE has found itself on the wrong side of the law due to its lending tactics.
In 2014, the CFPB found that ACE used illegal debt-collection tactics to create a false sense of urgency to lure overdue borrowers into repeat borrowing. ACE would encourage overdue borrowers to temporarily pay off their loans and then quickly re-borrow from the company. That case resulted in a $10 million fine for ACE.
Despite the 2014 lawsuit and fine, ACE continued to use deceptive tactics, the CFPB alleges.
Specifically, the CFPB says:
"Since July 10, 2014, ACE has received more than $240 million in fees from hundreds of thousands of customers who were eligible for a free repayment plan. And, since January 2016, it has made at least 3,000 unauthorized debit-card withdrawals, which resulted in at least $1.3 million being illegally debited from at least 3,000 borrowers."