But consumer advocates are skeptical. Marisabel Torres, California lawmaker at the Center for Responsible Lending, says “Buy Now Pay Later” with the wrong name. These are short-term loans that are paid in installments, which are very different. Others include late payment but not interest; others charge interest. Some report to credit unions and some do not. Consumer advocates say that different types of donations can be confusing especially for young users with a small credit history or financial background.
Afterpay, for example, does not charge interest on BNPL services, but collects them A $ 87 million ($ 64 million) in late payment from users within 12 months ended June 30. Affirm does not pay late fees but is collected $ 200 million in interest payments from consumers in the same 12-month period.
“Managers need to look under the hood to see how much profit these companies are making coming up because they can pay a lot of money late,” Torres says. Lower prices and consumer loans can speak to a type of business designed to profit from failure to pay. He says: “We’ve seen debt crunch in the marketplace, and nobody was listening. “This was not good for consumers or the economy.”
Legislators and regulators are watching. Earlier this month, the House Financial Services Committee heard from consumer advocates about potential risks to potential buyers. Torres and other witnesses call for stricter and more frequent billing lawsuits, which could affect long-term credit levels, and stricter credit acceptance rules.
Consumer Financial Protection Bureau in July issued a blog post leading consumers. Among other things, the post warned, “Do not overspend.”
“We have the experience of working with supervisors to protect the majority of our assets from the outset,” said Harris Qureshi, head of government policy at Afterpay. He also claims that the service suspends the user’s account if they miss a payment and provides a “difficult line” for users who are unable to pay after unexpected difficulties.
In a statement to WIRED, an Affirm spokesman said the company does not charge late, tells customers their full price, and evaluates users before approving BNPL fees.
“We understand and support the relevant laws and adhere to the rules” followed by the federal and state agencies, Klarna’s spokesman said in an email. “However, we do not believe that the items that make up interest should not be run in the same way as those with high interest rates.”
Merchants also pay a fee, either cheaper, say, 30 cents per purchase, 4 to 6 percent of the purchase price, or sometimes both. This, too, is a change. Business payments and transactions are possible about half of Affirm funds but more than 90 percent of Afterpay’s. But some merchants prefer these services.
“Once I started using it, I sold a lot of things,” says Brittany Aaron, who sells bodybuilding at her online store, Angel Kisses. Since offering Shop Pay and Afterpay early last year, Aaron says sales have risen by about 30 percent, with nearly 70 percent of users buying BNPL products and services.
Aaron says the money he pays for the service is cheaper due to the amount of customers’ baskets. Since launching the service, BNPL customers have spent a lot of money on each trip. A recent study from Lending Tree found that a quarter of BNPL users he admitted that he bought more spending more than he could have if he had to pay out of pocket.