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The hidden dangers of “buy now, then pay” apps

But consumer advocates are skeptical. Marisabel Torres, the director of policy at the Center for Responsible Loans, says “Buy now, pay later” is the wrong name. They are short-term loans, which are repaid in installments, with conditions that can vary greatly. Some include late fees but no interest; others charge interest. Some reported to credit bureaus and others did not. Consumer advocates say the diversity of offerings can be particularly confusing for young users with little credit history or low financial literacy.

Afterpay, for example, does not charge interest on BNPL services, but does charge $ 87 million ($ 64 million) in late commissions By 12-month users ending June 30th. Affirm does not charge late but charges $ 200 million in interest payments 12 months at a time from consumers.

“Regulators need to look under the hood to see exactly how much late fees are being charged by these companies because they are being charged a lot,” says Torres. They can talk about a business model designed to take advantage of high priority rates and the inability to pay off user debt. “We’ve seen credit overflow in the market before when no one cares,” he says. “That wasn’t good for consumers or the economy.”

Legislators and regulators are noticing. Earlier this month, the House Financial Services Committee heard from consumer advocates about the potential risks to service consumers. Torres and other witnesses called for stricter regulation and more data on user frequency, potential long-term impact on credit scores, and stricter rules on credit acceptance.

Office of Consumer Financial Protection in July a blog post to guide consumers. Among other things, he warned of the message: “Don’t stretch your finances too much.”

“We have experience working with regulators to build a lot of the support we have from the beginning,” says Harris Qureshi, head of public policy at Afterpay. He noted that the service freezes a user’s account if they lose payments and provides a “difficulty line” for users who are unable to make payments after unexpected problems.

In a statement to WIRED, an Affirm spokesman said the company does not charge late fees, tells consumers in advance of their full cost, and screens users before approving BNPL funding.

“We understand and accept reasonable regulations and comply with the rules set by state and federal agencies,” a Klarna spokesman said in an email. “We don’t think, however, that uninteresting products should be regulated in the same way as high-interest products.”

Merchants also pay fees for services, usually a flat charge of 30 cents per purchase, a commission of about 4 to 6 percent of the purchase, or sometimes both. This is also variable. They consist of trade fees and transactions about half Confirm income but over 90 percent Afterpay. But some retailers love the services.

“As soon as I started using it, I sold more products,” says Brittany Aaron, of her online store, Angel Kisses, which sells bath and body products. Since offering Shop Pay and Afterpay early last year, Aaron says sales have risen by about 30 percent, with nearly 70 percent of users buying goods with BNPL services.

Aaron says the fees he pays for services are low because of the large rise in buyer baskets. Since the service was offered, BNPL buyers have spent more on each trip. A recent survey by Lending Tree found that it has a quarter of BNPL users they admitted that they had bought more using what they would have had if they had had to pay for the service out of pocket.


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