Buy now, pay later services could have hidden costs: PIRG analysis

Many consumers are increasingly using buy now, pay later (BNPL) services at checkout to help pay for their purchases. But a new analysis from U.S. PIRG showed that these services may be doing more harm than good.

BNPL providers integrate with retailers to offer consumers the ability to split their online purchases into smaller installments. These interest-free payments are usually set to be paid back on a bi-weekly basis but are subject to late fees.

U.S. PIRG analyzed the Consumer Financial Protection Bureau’s (CFPB) database of consumer complaints related to BNPL services and found that consumers have complained about hidden fees, high interest rates and problems if they come into debt collection.

"There’s no such thing as a free lunch," Ed Mierzwinski, senior director of U.S. PIRG Education Fund’s consumer program, said. "Or free airline tickets. Or free appliances. But it isn’t hard to get the latter two with no money down these days with the proliferation of Buy Now, Pay Later plans.

"Many of these installment plans, often advertised as ‘free’ to the consumer if all payments are made on time, aren’t run by the company you buy your furniture or electronics from," Mierzwinski said. "Instead, they’re managed by third-party financial firms – known as fintechs – and some claim they aren’t subject to credit card consumer protections."

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CFPB grows weary of buy now, pay later

At the end of last year, the CFPB opened an investigation into BNPL programs to examine the risk of using this option. The CFPB opened a comment period for the investigation, encouraging consumers and stakeholders to submit their comments to the bureau before March 25. 

"Buy now, pay later is the new version of the old layaway plan, but with modern, faster twists where the consumer gets the product immediately but gets the debt immediately too," CFPB Director Rohit Chopra said in December. "We have ordered Affirm, Afterpay, Klarna, PayPal and Zip to submit information so that we can report to the public about industry practices and risks."

Consumer rights groups have also been skeptical of BNPL, and 79 groups sent a letter to the CFPB director in December voicing their concerns.

"BNPL products do not underwrite for a consumer’s ability to repay, can rely on the expectation of late fees, can be difficult to manage and can trigger punitive overdraft or non-sufficient fund fees if linked to a bank account," the letter stated. "Further, these products can lead consumers into taking on unmanageable amounts of debt and lack the same dispute or refund rights that credit cards have should a consumer be unsatisfied with their purchase."

If you have racked up debt from BNPL services, you could consider taking out a personal loan to help you pay it off. You can visit Credible to compare multiple lenders at once and choose the one with the best interest rate for you.

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Consumers could be hit hard if they miss payments

While BNPL options allow consumers flexibility in paying for major purchases, missed payments could create more of a burden than consumers are prepared for, according to the PIRG report. 

"At the point of purchase, a BNPL offer of six weeks or two months with no interest may seem better than the revolving monthly interest rate if you don’t pay your credit card bill in full," Mike Litt, U.S. PIRG Education Fund consumer campaign director, said. "But at the end of the day, buyer beware if you don’t make all your payments on time. The CFPB needs to make sure that no matter how you pay, you get consumer protections."

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