New Regulations for Buy Now Pay Later

The best thing about buy now pay later (BNPL) is that it is so easy to make purchases on credit, and, in theory, they are interest free.  The worst thing is that it is so easy to buy things that you cannot afford, and therefore to fall behind on payments.  Optimists might say that BNPL offers truly equitable access to credit, while pessimists might say that it is a nearly invisible debt epidemic.  Depending on who you ask, BNPL is either like a credit card without the interest payments or the subprime lending world’s answer to the credit card.  This month, the Consumer Financial Protection Bureau (CFPB) issued new regulations for BNPL companies.  It requires them to operate like credit card companies in several important ways, but with one glaring omission, namely that BNPL does not factor into your credit score.  If you are struggling with BNPL debt, contact a Boca Raton credit repair lawyer.

Most BNPL Companies Already Do What the New Guidelines Require

One of the purposes of the CFPB is to regulate the consumer finance industry and to prevent predatory lending to consumers.  In the past, it has cracked down on payday loans, to give just one example.  It recently issued guidelines requiring BNPL companies to offer the following protections to consumers, which credit cards are already required to provide:

• Refunding customers’ money for returned purchases
• Enable customers do dispute charges and pause payments on charges that are under dispute
• Include fee disclosures on customers’ billing statements

The good news is that the major players in the BNPL industry, namely Affirm and Klarna, already provide these services.  One of the biggest criticisms of the newest regulations is that they do not address one of the biggest reasons that BNPL users tend to remain in debt, namely that it operates independently of your credit score.

The Biggest Problem With BNPL Is Its Lack of Relationship to Your Credit Score

The good news is that no credit check is required for entering into a BNPL agreement; you can make BNPL purchases even if you have a low credit score or no credit history.  The bad news is that BNPL companies do not report customers’ payment history to the major credit reporting bureaus, namely Equifax, Experian, and TransUnion.  This means that you can make all your BNPL payments on time, and your credit score will not budge, while someone else who makes the same payments toward a credit card will get a big credit score boost.  Another problem with the lack of connection between BNPL and credit scores is that, if you have BNPL debt, the credit bureaus may not know about debts you currently owe, so your credit score may be higher, enabling you to qualify for loans on which you will struggle to keep up with payments.

Work With a Debt Lawyer About Invisible Debts

A South Florida debt lawyer can help you if you are struggling with more debt than your credit score reflects.  Contact Nowack & Olson, PLLC in Boca Raton, Florida to discuss your case.

Source:

cnbc.com/2024/06/03/cfpbs-bnpl-regulation-doesnt-go-far-enough-harvard-fellow-says.html