The buy now, pay later boom: Why Congressional lawmakers are now paying attention

The buy now, pay later industry is booming. As we first reported last month, it’s changing how people spend money and that’s especially important as you shop this holiday season. Lawmakers are taking notice and asking questions.

In short, BNPL (buy now, pay later) providers offer instant approval, point-of-sale loans through third-party companies like Affirm, Klarna, Afterpay, and Sezzle.

The loans are usually short-term—and unlike most credit cards — interest-free if you make your payments on time and in full.

WINK News Investigative Reporter Celine McArthur has been looking into this new choice at the checkout and explains why lawmakers are now paying closer attention.

Lawmakers on the House Financial Services Committee in Washington DC are playing catch up. They’re asking basic questions about how BNPL works, trying to figure out if they need to step in to protect you from hidden costs and potentially crippling debt that could lead to a nationwide financial crisis.

Buy now, pay later is a 100-billion-dollar industry and its unbridled growth is shaking up the financial world.

“A recent study by McKinsey reports that buy now, pay later fintechs [financial technology comapnies] have diverted between eight to $10 billion in revenue from traditional banks,” says Congressman Stephen Lynch, D-MA.

Congressman Lynch and fellow lawmakers met with a handful of consumer advocates and leaders of financial technology associations—who represent some of the big buy now, pay later providers—to discuss the pros and cons.

“The use of consumer data, the exploitation around spending patterns, the application of lending laws and the potential for unsustainable levels of consumer debt,” says Lynch.

Buy Now, Pay Later—BNPL—advocates explain how this service is different, and potentially more appealing, than traditional credit.

“It is not a revolving debt situation. It is one in which they want to satisfy their obligations in a very timely in a short period of time,” says Penny Lee, CEO, Financial Technology Association. “And so, it gives the consumer the power.”

Consumer advocates lay out what they see as red flags and real risks.

“The top buy now, pay later lenders accounted for nearly 11 million, or 91% of the total consumer loans originated in 2020. If there are problems, their impact will be felt on a wide scale,” says Marisabel Torres, Center for Responsible Lending.

Buyers aren’t limited to how many BNPL platforms they can shop on at once.

“Multiple loans can be difficult to manage and can lead to unaffordable debt loads,” says Lauren Saunders, National Consumer Law Center.

Without federal regulations, they say BNPL providers can change how they operate and use your information at any time.

“Products may not stay free or low cost, or the ultimate business model may be different than it appears,” says Saunders.

Lawmakers asked if children can use these platforms. Here’s how the Financial Technology Association responded:

Rep. Ritchie Torres, D-NY: “Could you legally use the product below the age of 18?”
Penny Lee, FTA: “I’ll have to double-check on that.”
Rep. Ritchie Torres, D-NY: “But would you support regulations that require a minimum age of 18 and older?”
Penny Lee, FTA: “I will confirm with our members as to if there is a minimum age.”
Rep. Ritchie Torres, D-NY: “What should the minimum age be?”
Penny Lee, FTA: “I will refer to the members.”

The FTA members were not part of this hearing. When lawmakers have questions about Facebook, they call in Mark Zuckerberg. The big BNPL providers, including Klarna, Afterpay, Sezzle and Affirm weren’t there to talk specifics.

Lawmakers did admit they need to learn more about the industry before discussing possible regulatory oversight through the Consumer Financial Protection Bureau. We will keep you posted on what happens next.

If there’s something you’d like me to investigate, email me at [email protected] or [email protected].

Reporter:Céline McArthur
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