Data harvesting and monetization: Many Buy Now, Pay Later lenders are shifting their business models toward proprietary app usage, which allows them to build a valuable digital profile of each user’s shopping preferences and behavior.These include a lack of standardized cost-of-credit disclosures, minimal dispute resolution rights, a forced opt-in to autopay, and companies that assess multiple late fees on the same missed payment. Inconsistent consumer protections: Borrowers seeking Buy Now, Pay Later credit may encounter products that do not offer protections that are standard elsewhere in the consumer financial marketplace.The marketing of Buy Now, Pay Later loans can make them appear to be a zero-risk credit option, but today’s report identified several areas of risk of consumer harm, including: Lenders’ profit margins are shrinking: Margins in 2021 were 1.01% of the total amount of loan originated, down from 1.27% in 2020.More purchases are ending in returns: 13.7% of individual loans in 2021 had at least some portion of the order that was returned, up from 12.2% in 2020. ![]() Late fees are becoming more common: 10.5% of unique users were charged at least one late fee in 2021, up from 7.8% in 2020.Loan approval rates are rising: 73% of applicants were approved for credit in 2021, up from 69% in 2020. ![]() Other highlights of Buy Now, Pay Later loan usage include: Apparel and beauty merchants, who had combined to account for 80.1% of originations in 2019, only accounted for 58.6% of originations in 2021. Once a niche financial offering that was heavily concentrated in apparel and beauty, Buy Now, Pay Later has now branched out to industries as disparate as travel, pet care, and even groceries and gas. The lending option has gained traction with consumers who seek the flexibility of being able to pay for goods and services over time, but who may have been leery of other credit products. Most Buy Now, Pay Later loans range from $50 to $1,000, and are subject to late fees if a borrower misses a payment.īuy Now, Pay Later rose to prominence in the past decade as an alternative form of credit for online retail purchases. “We will be working to ensure that borrowers have similar protections, regardless of whether they use a credit card or a Buy Now, Pay Later loan.”īuy Now, Pay Later is a form of interest-free credit that allows a consumer to fully purchase a product, and then pay back the loan over four installments, with the first installment typically being a down payment on the purchase. “Buy Now, Pay Later is a rapidly growing type of loan that serves as a close substitute for credit cards,” said CFPB Director Rohit Chopra. ![]() The five firms surveyed in the report originated 180 million loans totaling over $24 billion in 2021, a near tenfold increase from 2019. The report, Buy Now, Pay Later: Market trends and consumer impacts, finds that industry grew rapidly during the pandemic, but borrowers may receive uneven disclosures and protections. – Today, the Consumer Financial Protection Bureau (CFPB) published a report offering key insights on the Buy Now, Pay Later industry.
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