TECHNOLOGY

The hidden dangers of ‘buy now, pay later’ apps


But consumer advocates are skeptical. “Buy now, pay later” is a misnomer, says Marisabel Torres, director of California policy at the Center for Responsible Lending. These are short-term loans that are repaid in installments, with terms that can vary greatly. Some include demurrage fees but not interest; Others charge interest. Some report to credit bureaus and some do not. Consumer advocates say the diversity of offerings can be particularly overwhelming for younger users with little credit history or financial literacy.

After payment, for example, you do not charge interest on BNPL services, but they are charged A$87 million ($64 million) in back fees of users in the twelve months ended June 30. The confirmation company does not charge a late fee but they collect it $200 million interest payments of consumers in the same 12-month period.

“Regulators have to look under the hood to see exactly how much profit these companies are making from the fact that they may be charging a lot of late fees,” Torres says. High default rates and user debt can speak to a business model designed to take advantage of the inability to pay. “We’ve seen credit flood the market before when no one was paying attention,” she says. “It ended up not being good for consumers or the economy.”

Lawmakers and regulators are taking note. Earlier this month, the House Financial Services Committee heard from consumer advocates about the potential risks to consumers of services. Torres and other witnesses called for stricter regulation and more data on how often users default, the potential long-term impact on credit scores, and stricter rules around credit approval.

July Consumer Financial Protection Bureau issued a Blog post To guide consumers. Among other things, the publication warned, “Don’t overstretch your finances.”

“We have experience working with regulators to build a lot of the protection we already have from the start,” says Haris Qureshi, Afterpay’s head of public policy. He notes that the service freezes a user’s account if they miss payments and provides a “hardship line” for users who are unable to make payments after unforeseen issues.

In a statement to WIRED, a spokesperson for Affirm said the company does not charge late fees, inform consumers of their total costs up front, and screen users before approving them for BNPL funding.

“We understand and support reasonable regulations and comply with regulations” imposed by state and federal agencies, a Klarna spokesperson said in an email comment. “However, we do not believe that non-interest products should be regulated in the same way that high-interest products should be regulated.”

Merchants also pay a fee for services, usually either a flat fee, for example, 30 cents on each purchase, a commission of about 4 to 6 percent of the purchase, or sometimes both. This is also variable. Merchant and transaction fees compensated about half From Affirm Revenue But More than 90 percent From Afterpay’s. But some merchants like the services.

“Once I started using it, I sold more products,” says Brittany Aaron, who sells bath and body products at her online store, Angel Kisses. Since introducing Shop Pay and Afterpay early last year, Aaron says sales have increased nearly 30 percent, with nearly 70 percent of users purchasing goods using BNPL’s services.

Aaron says the fee she pays for services is a small price tag for big increases in shopper baskets. Since the service was introduced, BNPL shoppers have spent more per trip. A recent survey from Lending Tree found that a quarter of BNPL users They admitted that they bought more Using the service more than they would have if they had to pay out of their pocket.



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