‘Buy Now – Pay Later’ Programs Must Have More Protections

As rising costs continue to strain family finances, many Americans take out short-term loans to pay for routine expenses.

These short term loans are marketed as Buy Now, Pay Later (BNPL).

More and more Americans are going into debt for groceries, when their rent is due, at the doctor or the vet’s office, or when the time comes to pay the electric bill.

However: when borrowers miss a payment, they may be hit with enormous penalties and fees.

Some lenders charge fees as high as 25 percent of the missed payment — turning a product marketed as “free” into a debt trap.

And unlike credit cards — which come due at the end of each month for all the purchases made over that time period — BNPL lenders issue individual loans for every transaction. One missed paycheck or lapse in funds can lead to a cascade of late fees.

To Protect Borrowers, Policymakers Should:

Ban usury.

If we wouldn’t let a loan shark charge sky-high interest rates, we shouldn’t let a tech company do the same thing.

Ban “chatbot doom loops” and dead ends.

Everyone should have a right to speak to a real person and get a response to basic questions and complaints. Companies now rely on AI chatbots to provide front-line customer service with limited functionality.

Cap late fees at $8.

We think policymakers should institute a hard $8 cap on BNPL late or penalty fees under all circumstances.

Make sure “free” actually means free.

Many companies in the BNPL market use subscription charges, transaction fees, and other junk fees to mask the true cost of the credit they are extending to their customers. If a BNPL lender markets a loan as “free” or “0% interest,” it should actually be free.

Guarantee the right to a full refund.

When a borrower unwinds a purchase, BNPL lenders should provide an equivalent process to unwind an accompanying BNPL loan, working with merchants to resolve returns with no additional costs, fees, or charges, to borrowers.

Guarantee borrowers a place to turn for help.

Lawmakers should establish a dedicated BNPL borrower advocate, to help families handle problems that emerge when things don’t go according to plan.

Modeled on the “student loan ombudsman” offices created to address the student debt crisis, borrower advocates can help resolve complaints and drive oversight by financial regulators.