The following report is by Credit News, first reported on May 24th:
The Consumer Financial Protection Bureau (CFPB) has just declared that “buy now, pay later” is subject to credit card rules—a move intended to protect consumers from predatory lending practices.
Just like credit cards, BNPL apps, including Klarna, Afterpay, and Affirm, will be required to investigate disputes and cover refunds when customers return items or cancel a booking.
The rules will go into effect in 60 days.
CFPD director Rohit Chopra said the new guidelines ensure that BNPL users receive “some of the same rights and protections of the Truth in Lending Act that apply to traditional credit cards.”
Enacted in 1968, the Truth and Lending Act regulates certain credit card activities and gives Americans the right to cancel certain transactions.
Until now, the rapidly growing BNPL market has been largely unregulated, feeding off Americans’ insatiable appetite for more credit.
According to Adobe Analytics, BNPL loans accounted for 8% of U.S. online sales in the first four months of the year, amounting to $25.9 billion.
Currently valued at $309 billion, the BNPL industry is forecast to grow by more than 25% in the next two years, according to GlobalData.
Although many BNPL loans offer free credit so long as the borrower pays off their balance on time, regulators say these programs take advantage of “financially fragile” Americans.
Buy Now, Pain Later?
According to research by the New York Fed, there’s a strong correlation between poverty and BNPL usage.
The New York Fed’s SCE Credit Access Survey found that financially insecure Americans are up to three times more likely to take out BNPL loans than their financially stable peers.
Among BNPL users, 62% of respondents in the survey said they’ve had to cut expenses to pay their bills over the past year, compared to only 38% among non-BNPL users.
Meanwhile, 61% of BNPL users said they paid off less than their full balance on their credit card bill, compared to only 32% of non-BNPL users.
“It is rare for people to use BNPL just once,” the Fed researchers wrote. “This suggests that high-frequency use may grow if the product continues to be adopted by financially fragile households.”
Unfortunately, BNPL loans have become just another way for credit-addicted Americans to spend more.
I’m sure there are people who use it well, but on average, we feel it kind of replaces the credit card. People are consuming extra. There’s just no way around it.
Ben Lourie, an accounting professor at the University of California, Irvine, told NBC News.
AUTHOR COMMENTARY
Proverbs 22:26 Be not thou one of them that strike hands, or of them that are sureties for debts. [27] If thou hast nothing to pay, why should he take away thy bed from under thee?
The BNPL thing is another part of the ever-expanding debt bubble that when it eventually pops, triggered by the collapse of other markets and indicators (namely commercial real estate and in turn the banks, and a collapse in the debt/credit/bond market), will only add to the mass economic implosion that looms off in the distance.
I have written a handful of posts warning of the rise and insistence of companies for the masses to accept BNPL as a ‘new normal.’
SEE:
- Walmart Adds Buy Now, Pay Later Option At 4,500 Self-Checkouts Ahead Of Christmas To Purchase Basic Items
- Americans Are Increasingly Using “Buy Now, Pay Later” Apps To Pay For Groceries And Fast Food
- Australia Is Now Offering “Buy Now Pay Later” Apps For Bread, Milk, And Gas, At A Max Of $500
- Credit Card Delinquencies Worst Ever In History According To Federal Reserve
[7] Who goeth a warfare any time at his own charges? who planteth a vineyard, and eateth not of the fruit thereof? or who feedeth a flock, and eateth not of the milk of the flock? [8] Say I these things as a man? or saith not the law the same also? [9] For it is written in the law of Moses, Thou shalt not muzzle the mouth of the ox that treadeth out the corn. Doth God take care for oxen? [10] Or saith he it altogether for our sakes? For our sakes, no doubt, this is written: that he that ploweth should plow in hope; and that he that thresheth in hope should be partaker of his hope. (1 Corinthians 9:7-10).
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My father was not a man of financial means by any stretch of the imagination. We had what we needed, little else. In life, much is actually ‘wants’. If you can’t afford it, you can’t have it. It’s as simple as that. Living within (or less than) your means equates to no one coming after you and/or charging you loan shark fees/rates.
If folks were taught basic life skills rather than concerning themselves with things that are not their business to begin with, they could figure out what a scam buy now pay later is to begin with!