“Buy Now, Pay Later” loans could soon play a bigger role in creditworthiness
Francis Creighton, president and chief executive of the Consumer Data Industry Association, a trading group for the credit bureaus, said it is important to include late-payment loans in credit reports so that lenders can get an accurate picture of a loan applicant’s overall credit profile. Since the loans are structured differently than conventional loans, the credit bureaus would first have to clarify “technical” questions in order to add them. “We have to make sure we get it right,” he said.
At the same time, the Federal Consumer Financial Protection Bureau has tightened scrutiny over companies that pay later. In mid-December, the Office opened an investigation and asked five companies to provide details of their business practices by March 1. Citing the “explosive growth” in pay later during the pandemic and during the Christmas shopping season, the office wanted to better understand the potential benefits and risks for consumers. The agency said it was also concerned about how companies are using the data they collect from customers.
The agency noted that consumers may have difficulty keeping track of payments when the credits are used for multiple purchases. “Because it’s easy to get these loans,” said the agency, “consumers may end up spending more than expected.”
Installment payments are usually automatically deducted from debit cards, so buyers may be charged overdraft fees if they don’t have enough funds in their accounts to cover the payments. When shoppers pay the installments with a credit card, they may incur additional debt and interest on their card if they fail to pay their installment balance in full.
In addition, according to the consumer agency, late payment loans offer less protection than traditional credit cards, such as the right to challenge a charge if a product is faulty.
Congressmen, as well as consumer groups, have called for greater oversight of businesses, noting that it is not clear whether borrowers can repay multiple loans because the installment loans do not use traditional credit checks.
Here are some “buy now, pay later” questions and answers:
What should I consider before taking out late payment loans?
Ms. Saunders said consumers should be confident that they can make the required installments in the allotted time. With traditional credit cards, customers have a single payment schedule and a summary of all fees, but someone with multiple credits with late payments may have to juggle multiple due dates. “You definitely want to make sure you keep track of your payments,” she said.