FTC warns consumers about using BNPL for last-minute gift shopping

Photo (c) Daniel Milchev - Getty Images

One finance expert says BNPL can have compounding effects if consumers aren’t careful

When it comes to using Buy Now, Pay Later (BNPL) for any 11th-hour holiday gift purchases, the Federal Trade Commission (FTC) says consumers should stop now and think about it later.

Not that BNPL isn’t a good option for some, the agency suggests, but it can also lull consumers into buying more than they can truly afford. And if someone isn't careful with their usage of BNPL, there could be a nasty downside.

If Buy Now, Pay Later is new to you, it’s simply a credit option where a payment schedule splits your purchase amount into a specified number of payments. For example, you pay the first one at checkout, and then one payment every two weeks for six weeks.

“Using Buy Now, Pay Later can be convenient, and usually free from interest charges,” the FTC said in an email to ConsumerAffairs. “Still, if you choose Buy Now, Pay Later, there are a few things you may want to watch out for.”

Limit the number of BNPL purchases. Because you can make multiple Buy Now, Pay Later purchases through different services or merchants in a short time, it’s easy to end up with more debt than you intended, or can afford, the FTC says.

An associated problem with items bought using BNPL is if an item gets returned. The agency warns that even though you may be able to return the merchandise – and may eventually get credit – your loan repayment agreement may require you to continue to make payments while you are returning or disputing a purchase until your return or dispute is resolved.

“And, because there are three different companies involved – the Buy Now, Pay Later company, the seller, and your financial institution – it can be challenging and stressful to resolve a problem.

Don’t think of this as a “quick fix.” “Using Buy Now Pay Later may immediately feel like the better option but it can lead to a financial hangover once reality sets in come January,” Trey Loughran, CEO at Purchasing Power, a company that offers credit using a payroll deduction component, told ConsumerAffairs.

Loughran said that in addition to the terms and conditions, they need to pay extra attention to the number of agreements they may be making. 

“Failing to make an agreed-upon payment for a Buy Now Pay Later can have compounding effects – requiring the consumer to pay late fees and potentially impacting someone’s credit score,” he said. “At the end of the day, Buy Now Pay Later solutions are another form of credit and consumers need to be conscious not to overextend themselves.”

Are you aware of the connection between BNPL and your bank account? Most consumers are used to getting credit card statements and having a grace period to pay those, but BNPL works differently. Buy Now, Pay Later products generally require installment payments to be set up for automatic payments, usually debited from your bank account instead. 

You might be hit with multiple late fees. Again, another difference between credit cards and BNPL that many consumers are blind to – the use of interest vs. fees.

“Some Buy Now, Pay Later services charge multiple late fees for a single missed payment, or try more than once to collect automatic payments from your checking account if they don’t go through. This could mean you pay higher late fees than you expected or incur multiple overdraft fees,” the FTC said.

Do you like being hounded by calls from creditors if you’re late in paying? When ConsumerAffairs reviewed the FTC’s database of complaints regarding BNPL, there were numerous worrisome narratives from consumers.

Those included complaints about receiving calls and letters from collection agencies, being “retaliated against” by a BNPL company after a complaint was filed, and claims made that BNPL accounts existed for some consumers even though they had never applied for one.

Being hassled is no fun, so add that to your “do I really need to put this purchase on BNPL” list.

Please, please, please buy more. Speaking of being hounded, the FTC says that many Buy Now, Pay Later services and apps use your data and shopping history to encourage you to buy more and spend more.

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