Buy Now Pay Later May Come Back to Bite Consumers

Buy Now Pay Later (BNPL) services have exploded in popularity in the past few years. In 2021 alone, American consumers made close to $100 billion in transactions using BNPL payments plans, compared to $24 billion in 2020. Though BNPL has been a popular option for common consumer purchases like clothing and furniture, it is now not uncommon to see the option to split a payment for groceries or a delivery meal into 4 installments. And while the meteoric rise of BNPL was undoubtedly fueled by the COVID-19 driving high levels of e-commerce, it’s no longer confined to online purchases; popular companies like Afterpay have expanded their services to cover in-store purchases as well. While consumers have evidently been eager to adopt BNPL, there are still open questions about how safe it really is for consumers.

While touted as a friendlier and more benign alternative to credit cards and other more traditional forms of credit, BNPL services still carry certain risks to consumers. The most remarked upon, and likely still the most salient, is the psychological effect of breaking payments into installments on consumers. Repeatedly, consumers have reported overspending because BNPL gives the illusion of items being cheaper than they actually are. Troublingly, surveys have shown that nearly half of BNPL users have made a late payment before, triggering either a late fee or interest charge. With BNPL being so pervasive now and more available than ever, it’s not difficult to imagine a near future where increasingly large numbers of consumers are getting trapped in cycles of debt. Because that’s what BNPL is, another form of debt.

Unfortunately for consumers who may be harmed by BNPL, there is not much protection available for them yet. As outlined in a letter sent in December 2021 from members of the U.S. Senate Banking Committee to the Consumer Financial Protection Bureau (CFPB), BNPL products have been purposefully structured to get around certain Truth in Lending Act and Military Lending Act requirements, do not have the same protections that credit cards do, and generally operate without any regulatory oversight. Further, there is evidence that the late fees charged by some services are greater than what credit cards do.

However, regulators have started to take notice. Also in December 2021, the CFPB announced its probe into BNPL, issuing orders to provide information to five of the biggest players in the BNPL sphere. And in January 2022, it opened a public comment period to solicit feedback on BNPL directly from consumers and other interested parties. Most recently, the agency issued a report on BNPL’s recent rise and its observations and concerns about the marketplace. The Federal Trade Commission has also taken an interest and put out a blog post alerting BNPL companies to potential compliance issues.

As federal and state regulators formulate their approaches to BNPL, there is likely little consumers can do to defend themselves if they are harmed. That’s largely because major BNPL service providers like Afterpay and Affirm have forced arbitration clauses with class action waivers buried in the fine print of their terms and conditions. Just as consumers don’t realize what kinds of fees they might be on the hook for when using one of these services, they likely also don’t realize they’re signing away their rights every time they click ‘checkout.’

Corporations use forced arbitration clauses to keep consumer claims out of court and away from the public eye. Instead of a judge and jury, consumers subject to forced arbitration must instead go before a private arbitrator in secretive, closed-door proceedings where they don’t have the same procedural protections as they would in court, and where the decisionmaker is not required to follow the law and has an incentive to side with the corporation in order to get repeat business. Worse still, when the arbitration clause includes a class action waiver, consumers must face large corporations on their own instead of being able to band together as a class. Forced arbitration essentially allows corporations to sidestep accountability for even systemic wrongdoing and blocks harmed consumers from receiving justice.

With regulatory oversight of BNPL still in very early stages and the courthouse doors barred firmly shut by rampant forced arbitration clauses, there aren’t many options for consumers who feel like they’ve been ripped off or deceived. This puts consumers in a precarious situation as BNPL continues its rapid growth while the risks are still underexamined. Regulators should prioritize developing a framework on how to police the growing market and Congress should be working to pass legislation that would get rid of forced arbitration. For now though, consumers who are considering using a BNPL service should carefully read the terms of use to understand what rights and obligations they have and don’t have before clicking ‘agree’ and taking on additional debt.



National Association of Consumer Advocates (NACA) is a nonprofit association of attorneys and advocates committed to representing customers’ interests.

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National Association of Consumer Advocates (NACA) is a nonprofit association of attorneys and advocates committed to representing customers’ interests.