{"id":105931,"date":"2023-06-22T08:43:00","date_gmt":"2023-06-22T12:43:00","guid":{"rendered":"https:\/\/www.shortform.com\/blog\/?p=105931"},"modified":"2023-06-22T09:42:23","modified_gmt":"2023-06-22T13:42:23","slug":"buy-now-pay-later-regulation","status":"publish","type":"post","link":"https:\/\/www.shortform.com\/blog\/buy-now-pay-later-regulation\/","title":{"rendered":"Why &#8220;Buy Now, Pay Later&#8221; Regulation Is on the Horizon"},"content":{"rendered":"\n<p>Why is &#8220;Buy Now, Pay Later&#8221; regulation in the works? Who do these programs help and harm?<\/p>\n\n\n\n<p>Buy Now, Pay Later (BNPL) services provide short-term financing that enables people to make large purchases they might otherwise not be able to afford. But critics argue that the services put financially vulnerable individuals at greater risk. <\/p>\n\n\n\n<p>Continue reading to learn about BNPL programs and regulations.<\/p>\n\n\n\n<!--more-->\n\n\n\n<h2 class=\"wp-block-heading\" id=\"h-problems-with-buy-now-pay-later\">Problems With &#8220;Buy Now, Pay Later&#8221;<\/h2>\n\n\n\n<p>\u201cBuy Now, Pay Later\u201d short-term financing services are often touted as game changers that help people afford big-ticket items they otherwise couldn\u2019t. Critics contend they put financially vulnerable individuals at greater risk.\u00a0<\/p>\n\n\n\n<p>&#8220;Buy Now, Pay Later&#8221; regulation is almost non-existent, but that may change soon.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\" id=\"h-what-are-bnpls\"><strong>What Are BNPLs?<\/strong><\/h3>\n\n\n\n<p>BNPL comes in <a href=\"https:\/\/www.forbes.com\/advisor\/credit-cards\/buy-now-pay-later\/\" target=\"_blank\" rel=\"noreferrer noopener\">two forms:<\/a>\u00a0<\/p>\n\n\n\n<ul class=\"wp-block-list\"><li><strong>Loans with interest, <\/strong>which you can use to buy something on the spot, but that come with interest like with a credit card.&nbsp;<\/li><li><strong>Loans without interest<\/strong> where, instead of consumers paying interest on the loan, merchants pay third-party lending companies a fee.<\/li><\/ul>\n\n\n\n<p>Most BNPL services are interest- and fee-free as long as buyers make payments in full and on time.&nbsp;<\/p>\n\n\n\n<h3 class=\"wp-block-heading\" id=\"h-who-s-using-bnpls\"><strong>Who\u2019s Using BNPLs?<\/strong><\/h3>\n\n\n\n<p>A growing number of Americans are using BNPL services\u2014a trend that began <a href=\"https:\/\/www.cnbc.com\/2021\/09\/21\/how-buy-now-pay-later-became-a-100-billion-industry.html\" target=\"_blank\" rel=\"noreferrer noopener\">during the Covid-19 pandemic<\/a> as brick-and-mortar stores closed and more people turned to online shopping.<\/p>\n\n\n\n<ul class=\"wp-block-list\"><li><a href=\"https:\/\/finmasters.com\/buy-now-pay-later-statistics\/#gref\" target=\"_blank\" rel=\"noreferrer noopener\"><strong>43% of Americans<\/strong><\/a><strong> used BNPL services in 2022, up from 31% in 2021.\u00a0<\/strong><\/li><li><a href=\"https:\/\/www.bankrate.com\/loans\/personal-loans\/buy-now-pay-later-statistics\/#stats\" target=\"_blank\" rel=\"noreferrer noopener\"><strong>More younger people finance purchases with BNPL<\/strong><\/a><strong> than older people.<\/strong><\/li><li><strong>Lower-wage earners use BNPL more than higher earners.<\/strong><\/li><li><strong>BNPL users are <\/strong><a href=\"https:\/\/www.investopedia.com\/buy-now-pay-later-5182291#citation-15\" target=\"_blank\" rel=\"noreferrer noopener\"><strong>more financially vulnerable<\/strong><\/a><strong> than non-users<\/strong><\/li><\/ul>\n\n\n\n<h3 class=\"wp-block-heading\" id=\"h-view-1-bnpls-help-consumers-and-retailers\"><strong>View 1: BNPLs Help Consumers and Retailers<\/strong><\/h3>\n\n\n\n<p>BNPL supporters argue that the services offer a number of benefits to consumers and retailers, including:<\/p>\n\n\n\n<ul class=\"wp-block-list\"><li><strong>They <\/strong><a href=\"https:\/\/www.forbes.com\/advisor\/credit-cards\/buy-now-pay-later\/\" target=\"_blank\" rel=\"noreferrer noopener\"><strong>empower financially constrained buyers<\/strong><\/a><strong>. <\/strong>BNPLs enable people with limited resources to buy big-ticket items they might otherwise not be able to afford and to manage their cash flow by spreading payments over time.<\/li><li><strong>They\u2019re convenient.<\/strong> BNPLs facilitate online shopping, allowing people to make purchases in the moment in simple, understandable terms.<\/li><li><strong>They <\/strong><a href=\"https:\/\/www.bigcommerce.com\/articles\/ecommerce\/buy-now-pay-later-ecommerce\/\" target=\"_blank\" rel=\"noreferrer noopener\"><strong>facilitate retailers\u2019 immediate payment<\/strong><\/a><strong>. <\/strong>Some BNPLs transfer funds to merchants as soon as a purchase is made.\u00a0<\/li><li><strong>They protect merchants from credit risk.<\/strong> BNPL providers pay retailers even if customers default.<\/li><\/ul>\n\n\n\n<h3 class=\"wp-block-heading\" id=\"h-view-2-bnpls-can-be-costly\"><strong>View 2: BNPLs Can Be Costly<\/strong><\/h3>\n\n\n\n<p>Opponents of BNPLs contend that the services can harm consumers, because:<\/p>\n\n\n\n<ul class=\"wp-block-list\"><li><strong>They <\/strong><a href=\"https:\/\/www.forbes.com\/advisor\/credit-cards\/buy-now-pay-later\/\" target=\"_blank\" rel=\"noreferrer noopener\"><strong>can cost buyers more money than they save them<\/strong><\/a><strong>. <\/strong>If consumers don\u2019t understand the terms of their BNPL services and fail to meet them, they can end up paying more in finance charges and penalties. <\/li><li><strong>They don\u2019t help build good credit\u2014and can harm it. <\/strong>Making BNPL payments on time won\u2019t help users\u2019 credit but paying late or failing to make a payment can damage their credit history, report, and score.<\/li><li><strong>They incentivize overspending.<\/strong> Paying for an item over time rather than upfront can make it feel less expensive than it is. <\/li><\/ul>\n\n\n\n<h3 class=\"wp-block-heading\" id=\"h-an-under-regulated-industry\"><strong>An Under-Regulated Industry&nbsp;<\/strong><\/h3>\n\n\n\n<p>To date, the BNPL industry has operated largely <a href=\"https:\/\/www.pymnts.com\/buy-now-pay-later\/2023\/pymnts-intelligence-governments-around-the-world-explore-bnpl-regulation\/#:~:text=While%20BNPL%20regulation%20is%20generally,sometime%20in%20the%20near%20future.\" target=\"_blank\" rel=\"noreferrer noopener\">without government oversight<\/a> in the US, but this could soon change. The Consumer Financial Protection Bureau (CFPB), a <a href=\"https:\/\/www.shortform.com\/blog\/predatory-mortgage-lending\/\">predatory lending<\/a> <a href=\"https:\/\/www.reuters.com\/business\/finance\/us-consumer-watchdog-plans-regulate-buy-now-pay-later-companies-2022-09-15\/\" target=\"_blank\" rel=\"noreferrer noopener\">watchdog<\/a>, is exploring regulatory options. The bureau recently released a <a href=\"https:\/\/s3.amazonaws.com\/files.consumerfinance.gov\/f\/documents\/cfpb_consumer-use-of-buy-now-pay-later_2023-03.pdf\" target=\"_blank\" rel=\"noreferrer noopener\">report<\/a> identifying risks that BNPL services pose to consumers, including that they:<\/p>\n\n\n\n<ul class=\"wp-block-list\"><li>Lead people to amass debt they can\u2019t pay off.<\/li><li>Use consumers\u2019 data without their knowledge.<\/li><\/ul>\n\n\n\n<p>The study revealed that a growing number of Americans using BNPL services are in over their heads financially. In 2021:<\/p>\n\n\n\n<ul class=\"wp-block-list\"><li><strong>BNPL vendors <\/strong><a href=\"https:\/\/techcrunch.com\/2022\/09\/15\/cfpb-signals-that-regulation-is-coming-for-bnpl\/?guccounter=1\" target=\"_blank\" rel=\"noreferrer noopener\"><strong>approved 73% of customers for loans<\/strong><\/a>, up from 69% the year before.<\/li><li><strong>The industry\u2019s rate of uncollectible loans increased to 2.39%<\/strong>, up from 1.83% in 2020.<\/li><li><strong>More consumers using BNPLs got hit with late fee charges: <\/strong>10.5%, compared with 7.8% a year earlier.<\/li><\/ul>\n\n\n\n<h4 class=\"wp-block-heading\">How to Pay Off Debts<\/h4>\n\n\n\n<p>If you&#8217;ve used a BNPL service and are struggling to pay it off, here&#8217;s some advice from <em><a href=\"https:\/\/shortform.com\/app\/book\/the-simple-path-to-wealth\/preview\" target=\"_blank\" rel=\"noreferrer noopener\">The Simple Path to Wealth<\/a>,<\/em> on how to pay off your debts. <\/p>\n\n\n\n<p>Paying off your debts is simple in concept but difficult in practice. You must significantly scale back your lifestyle and spending to free up money and discipline yourself to stay the course for months or years until the debt is gone.<\/p>\n\n\n\n<p><strong>Scaling back your lifestyle and using the money to pay off debt lays the foundation for financial <a href=\"https:\/\/www.shortform.com\/blog\/maturity-continuum-7-habits\/\">independence<\/a>.<\/strong>&nbsp;When your debt is gone, you\u2019ll be in the habit of <a href=\"https:\/\/www.shortform.com\/blog\/being-frugal\/\">living frugally<\/a>, and it will be easy to shift the money you were paying on debt to investing.<\/p>\n\n\n\n<p><strong>Here are the steps to pay off debt:<\/strong><\/p>\n\n\n\n<ul class=\"wp-block-list\"><li><strong>Step 1:<\/strong>\u00a0List all your debts in order of interest rate with the highest first.<\/li><li><strong>Step 2<\/strong>: Eliminate all unnecessary spending (coffee, dinners, drinks) so you can put as much as possible toward <a href=\"https:\/\/www.shortform.com\/blog\/how-to-get-rid-of-debt\/\">paying off debts<\/a>.<\/li><li><strong>Step 3:<\/strong>\u00a0Pay the minimum on all debts, then direct any remaining money toward paying down the debt with the highest interest rate first (this saves the most money).<\/li><li><strong>Step 4:<\/strong>\u00a0When the highest-interest debt is paid off, focus on the one with the next-highest interest rate, and so on.<\/li><\/ul>\n\n\n\n<p>An alternative method is to pay off your loans in the order of their size, starting with the smallest ones first. Starting small and racking up some successes gives you a psychological boost that motivates you to take progressively bigger steps.<\/p>\n\n\n\n<p>For more on the alternate method of paying off debts,\u00a0<a href=\"https:\/\/www.shortform.com\/app\/book\/the-total-money-makeover\" target=\"_blank\" rel=\"noreferrer noopener\">read our summary of <em>The Total Money Makeover<\/em> here.<\/a><\/p>\n\n\n\n<h5 class=\"wp-block-heading\">What Not to Do<\/h5>\n\n\n\n<ul class=\"wp-block-list\"><li><strong>Don\u2019t use a credit counseling service.<\/strong>&nbsp;These services cost you money, and they don\u2019t have a magic bullet. There\u2019s no escaping that debt reduction is painful and that you\u2019re the one who must do it.<\/li><li><strong>Don\u2019t consolidate your loans to get a lower interest rate&nbsp;<\/strong>(this is often done for you by credit counselors). Just work hard and fast to pay them off and your rate will soon be zero\u2014which is better than reducing it from 18% to 12% through consolidation and stretching out the loan.<\/li><\/ul>\n\n\n\n<h3 class=\"wp-block-heading\" id=\"h-looking-ahead\"><strong>Looking Ahead&nbsp;<\/strong><\/h3>\n\n\n\n<p>Experts expect the CFPB to issue &#8220;<a href=\"https:\/\/www.pymnts.com\/buy-now-pay-later\/2023\/pymnts-intelligence-governments-around-the-world-explore-bnpl-regulation\/#:~:text=While%20BNPL%20regulation%20is%20generally,sometime%20in%20the%20near%20future.\" target=\"_blank\" rel=\"noreferrer noopener\">Buy Now, Pay Later&#8221; regulations<\/a> in the near future, and say the bureau may impose oversight similar to what credit card companies face. <\/p>\n\n\n\n<p>A set of clear, uniform rules will ensure that all parties know their rights and have faith in the services being rendered.\u00a0<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Why is &#8220;Buy Now, Pay Later&#8221; regulation in the works? Who do these programs help and harm? Buy Now, Pay Later (BNPL) services provide short-term financing that enables people to make large purchases they might otherwise not be able to afford. But critics argue that the services put financially vulnerable individuals at greater risk. Continue reading to learn about BNPL programs and regulations.<\/p>\n","protected":false},"author":8,"featured_media":105932,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[45,31,275],"tags":[727],"class_list":["post-105931","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-business","category-money","category-politics","tag-articles","","tg-column-two"],"yoast_head":"<!-- This site is optimized with the Yoast SEO Premium plugin v24.3 (Yoast SEO v24.3) - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>Why &quot;Buy Now, Pay Later&quot; Regulation Is on the Horizon - Shortform Books<\/title>\n<meta name=\"description\" content=\"&quot;Buy Now, Pay Later&quot; services gained popularity during the pandemic. Learn how these programs are unregulated and harmful to customers.\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.shortform.com\/blog\/buy-now-pay-later-regulation\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Why &quot;Buy Now, Pay Later&quot; Regulation Is on the Horizon\" \/>\n<meta property=\"og:description\" content=\"&quot;Buy Now, Pay Later&quot; services gained popularity during the pandemic. 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