NEW YORK – Buy now, pay later services are a popular way shoppers pay for goods.
A payment plan is typically marketed as no-interest or low-interest, and allows consumers to spread out payments for purchases over several weeks or months.
Since shoppers love this service, offering it can be a plus for small businesses. But since the payment plan is provided by third-party companies — like Affirm and Klarna — there can be risks, too.
Buy now, pay later programs, like the one offered by Chase, often allow consumers to choose payment plans without any interest.
If something goes wrong, consumers can blame small businesses — even if they had nothing to do with the payment plan. And things can go wrong.
A 2022 report by the Consumer Financial Protection Bureau found that more than 13% of BNPL transactions involved a disputed fee or return. In 2021, consumers intercepted or returned $1.8 billion in transactions at five large BNPL affiliates, the CFPB said.
The plans also cost small businesses money — typically a 1% to 3% fee, which can increase when margins are tight.
But the CFPB issued a new rule in May that may ease the minds of small business owners. The agency said “buy now, pay later” companies must provide consumers with the same legal rights and protections as credit card lenders.
This means that consumers have legal protections including the rights to dispute charges, easily get a refund directly from the lender for the returned item, and access to billing data.
Lenders must now investigate disputes brought to them by a consumer and pause payment requirements while they investigate.
If a shopper returns a product or cancels services, the lender must deposit the refund into the shopper's account. And buy now, pay later, lenders will need to send billing data to consumers like traditional credit card companies do.
The CFPB began studying the industry more than two years ago and found that many consumers are using the service as an alternative to traditional credit cards when purchasing products.
It said in a press release that it continues to see consumer complaints related to refunds and disputed transactions, although the new rule “will help bring consistency to this market.”
Contributing: Sun-Times
