Watch out for buy now, pay later deals

Most consumers don’t know what they’re getting into when they sign up for “buy now, pay later” arrangements.

“BNPL lenders are making it easier for borrowers to use high-cost loans for everyday purchases,” said Peter Smith, a senior researcher at the Center for Responsible Lending. “At the same time, they are trying mightily to hide the true costs and risks of these loans.”

A report by the center and Consumer Federation of America found:

• Thirty-seven percent incurred an overdraft fee in the last six months.
• More than 16 percent had been charged a late or rescheduling fee, or other related fee, by the buy now, pay later provider or their bank, within the last six months.
• Those with lower incomes were more likely than those with higher incomes to report using buy now, pay later credit because the purchase wouldn’t otherwise fit in their budget.
• Nearly three-quarters viewed buy now, pay later as most similar to either a credit card or another form of installment loan, both of which are subject to the Truth in Lending Act and other state and federal credit laws.
• Consumer understanding about how buy now, pay later functions and is regulated was very low.

The report emphasizes the need for more regulation to ensure consumer protection, transparency in agreement terms, and standard practices for late payments and dispute resolutions.

The Federal Trade Commission offers these tips on what to know if you choose the buy now, pay later option at checkout to pay for an item:

• The plan might require a credit check, but some plans might offer no credit checks.
• You pay part of the cost now and get the item.
• The money goes to the company that manages the plan.
• That company pays the store in full.
• You make regular payments to the company that manages the plan. Usually, you pay with a credit or debit card over a few weeks or months until you pay off the purchase in full. You don’t pay the store.  

Many buy now, pay later plans advertise no-interest payments and few or no fees – but most plans do charge some fees, sometimes high ones.

“The current landscape of ‘Buy Now, Pay Later’ services, marked by limited oversight and insufficient consumer safeguards, poses a real threat,” said Susan Weinstock, CEO of the Consumer Federation of America. “Many, particularly lower-income consumers, stand at risk of being ensnared by mounting fees and deepening financial instability.”

Comments

[Carol Cassara]

I have never used one.

[Rita]

The lay away purchases of the past had problems. When I was a consumer columnist for The Anchorage Times, I wrote about one, too, and got in big trouble.

Buy now, pay later options over the internet can have fees, even big ones, even though the companies say that there are little or no fees.