Buy Now, Pay Later (BNPL) is the new layaway system, but for the modern age.
Maybe you have seen these super popular BNPL features popping up over the last year on your favorite shopping sites — like those that let you use PayPal.
But, this ain’t your grandma’s layaway plan.
Basically, the way they work is that you get your product immediately, but you have to take out a small loan to cover the cost of the product.
You might not see it as a loan, but that’s what it is. There may not be any interest on these loans, but it means you go into just a little bit of debt that you have to pay back monthly — usually over about 3 months.
The problem is, if you take out too many of these BNPL loans, you end up in more debt than you even know what to do with.
I can totally see where this would be a problem, ESPECIALLY around the holiday gift-buying season.
It’s like using your debit card or credit card. If you don’t pay really close attention to how much you’re spending, you can get yourself in the hole REALLY QUICKLY.
The Consumer Financial Protection Bureau said Thursday that it is looking to “collect information on the risks and benefits of these fast-growing loans” from five leading BNPL companies: Affirm; Australia’s Afterpay, which is getting bought by Square owner Block; PayPal; privately held Swedish fintech Klarna; and Zip, another BNPL firm headquartered in Australia.
The Consumer Financial Protection Bureau is also concerned with the way these BNPL companies collect personal information about the people who choose to be a part of the program.
Also, since the BNPL companies are not banks, they aren’t subject to the same checks and balances that banks go through to insure the safety of the users.
Basically, the consumer isn’t as protected as they think they might be.
There is the potential for abuse there, and the CFPB is looking into the BNPL situation with the help of their international partners which are in the UK, Australia, Sweden, and Germany.
All of the major BNPL companies say they welcome the review from the CFPB, and they have been — and continue to be — nothing but transparent.
Most of them say that they are already run under the federal and state regulations that apply to loans.
What does this review by the CFPB mean for the consumer?
It is just going to insure you are safe and taken care of — not taken advantage of — by using these interest free loans.
And, that can only be a good thing, right?