”We do not, however, believe no-interest products should be regulated in the same way as high-interest products.” “We understand and support reasonable regulation and are compliant with regulations” enforced by state and federal agencies, a Klarna spokesperson said in an emailed comment. He notes that the service freezes a user’s account if they miss payments and offers a “hardship line” for users unable to make payments following unforeseen issues. “We have experience working with regulators to build in a lot of the protections that we already have from the very beginning,” says Harris Qureshi, Afterpay’s head of public policy. Among other things, the post warned, “Don’t overextend your finances.” The Consumer Financial Protection Bureau in July issued a blog post to guide consumers. Torres and other witnesses called for tighter regulation and more data on how often users default, the potential long-term impact on credit scores, and tighter rules around credit approval. Earlier this month, the House Financial Services Committee heard from consumer advocates on the potential risks to consumers of the services. Lawmakers and regulators are taking notice. “That ended up not being good for consumers or the economy.” “We've seen credit flood the market before when no one was paying attention,” she says. High default rates and user debt could speak to a business model designed to profit from inability to pay. “Regulators need to be looking under the hood to see exactly how much of the profits these companies are making is coming from the fact that they might be charging a lot of late fees,” Torres says. Affirm doesn’t charge late fees but collected $200 million in interest payments from consumers in the same 12-month period. Marisabel Torres, director California policy, Center for Responsible LendingĪfterpay, for example, doesn’t charge interest on BNPL services, but it collected A$87 million ($64 million) in late fees from users in the 12 months ended June 30. Now, utilities, landlords, insurance companies, and car dealers are partnering with BNPL services for essentials. The range of products that can be financed using BNPL has been growing: Amazon and Apple announced new partnerships with Affirm this year, while Target, Macy’s, Gamestop, Foot Locker, Gucci, and Peloton all announced BNPL financing options. Popular BNPL services include Affirm, Afterpay, Quadpay, and Klarna. Cornerstone Advisors estimates $100 billion in purchases this year will be made using BNPL apps, up from $24 billion last year. Meanwhile, the low-cost, multiple-installment appeal of BNPL led to an astounding increase in such payments. While online shopping soared last year during the pandemic, credit card companies kept credit limits low and reduced new offers as lockdowns and layoffs prompted fears of widespread defaults. But as the services extend from small-ticket items to luxury goods, exercise equipment, and even rent and utilities, consumer protection advocates worry they may lead people into buying more than they can afford. “Buy Now, Pay Later” apps give millions of users the chance to instantly purchase what they want, then pay off the item in installments.
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