As the popularity of “buy now, pay later” loans has skyrocketed, some borrowers have found it increasingly difficult to pay. Companies that offer the option have also become more aggressive about marketing, raising concerns about the fast-growing industry.
Given those features, consumer advocates and financial advisors initially had seen buy now, pay later plans as a potentially healthier form of consumer debt if used correctly. The biggest concern had been late fees, which could act as a hefty finance charge on a small purchase if a borrower is late on a payment. The fees can run as high as $34, plus interest.
“This upward trend on delinquencies is continuing,” said Rohit Chopra, director of the CFPB, in a call with reporters. Speaking at a hearing of the Senate Banking Committee Tuesday about new financial products, Sen. Sherrod Brown, D-Ohio, noted the benefits of plans that allow consumers to pay for things in installments. But he also criticized the way in which the industry promotes the plans.
“With zero to low-interest, flexible payment terms, and transparent terms and conditions, BNPL helps consumers manage their cash flow responsibly and live healthier financial lives,” said Penny Lee, CEO of the Financial Technology Association. “I would not call it a sort of preamble to a potential downturn, but it’s not the same kind of a smooth sailing it’s been,” he said, adding that Affirm is taking a more conservative approach towards lending.
Further, the industry’s growth is attracting more players. Technology titan Apple earlier this summer announced Apple Pay Later, where users can put purchases on a four-payment plan over six weeks.
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