US consumer protection agency investigates 'buy now, pay later' plans

NEW YORK (AFP) – The United States Consumer Financial Protection Bureau (CFPB) announced on Thursday (Dec 16) it has opened an investigation into the risks and benefits of “buy now, pay later” payment options, which have become particularly popular during the Covid-19 pandemic.

The US agency said that it is working on the issue in conjunction with the Australian, Swedish, German and British authorities.

In Singapore, the banking regulator is reviewing “buy now, pay later” schemes to see if it is necessary to ring-fence consumers from overspending.

The US agency said it is “concerned” about the potential accumulation of debt, compliance with consumer protection laws and the use of data collected by companies offering such payment schemes. The CFPB has requested more information from five such companies: Affirm, Afterpay, Klarna, PayPal and Zip.

The companies typically let customers pay for a purchase in four instalments with no fees or interest and no paperwork.

While it has long been possible in the US to pay for a product in instalments, the new payment schemes add “modern, faster twists”, said agency director Rohit Chopra in a statement.

For proponents of “buy now, pay later”, the new form of financing provides a less risky alternative to credit cards, which charge interest that is often complicated to understand and can add up quickly.

The payment options can also provide valuable assistance to consumers who do not have access to traditional credit.

The use of “buy now, pay later” exploded during the pandemic, and partnerships with stores have multiplied, with the latter willing to pay a percentage of the transaction for purchases that customers would not necessarily have been able to pay for in one go.

But, the CFPB said, “because of the ease of getting these loans, consumers can end up spending more than anticipated”.

Some of the companies offering the payment scheme “may not be adequately evaluating what consumer protection laws apply to their products”, such as on late penalties or dispute resolution, the agency said.

The CFPB would also like to “better understand” how the payment companies use and market data collected from their customers.

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