As a new interpretive rule from the Consumer Financial Protection Bureau (CFPB) is set to give “buy now, pay later” customers more legal protections, the Better Business Bureau (BBB) is sharing tips for using these services wisely.
"Buy now, pay later" is a service that many retailers offer to allow shoppers to space out smaller payments on an item over time rather than paying the full cost upfront.
In its May 22 interpretive rule, the CFPB confirmed that buy now, pay later lenders qualify as credit card providers — giving consumers legal protections such as the right to dispute charges and demand refunds and the right to receive billing statements.
Buy now, pay later plans are often run by third-party financing companies. These financing companies operate similarly to credit card lenders, but before the CFPB ruling, customers did not have all the same protections as they would with a credit card provider.
Nearly 16,000 consumers filed complaints with BBB in 2023 about payment processing services, which include installment payment financing companies. Many complaints related to "buy now, pay later" plans focus on billing errors, failure to issue refunds, and being charged for lost or undelivered items.
While many "buy now, pay later" services involve just a few small payments and zero percent interest, some charge as high as 30 per cent interest rates. You may also be charged fees for late or rescheduled payments.
If you're considering buying now, pay later, and read the terms carefully before signing on to avoid being surprised by fees, interest, or other charges. If you do run into an issue, remember that you have rights as a consumer according to the new CFPB rule.
Tips for using "buy now, pay later:"
Consider it a loan
- A buy now, pay later plan is essentially a loan – even if you won’t pay interest. Ask yourself if the total price is more than you can afford and decide accordingly.
Stick to your budget
- Bi-weekly or monthly payments could greatly impact your budget, even if the payments seem small
- Double-check that the payment plan fits within your budget.
Research the retailer and financing company
- Look up the retailer and the financing company at BBB.org to make sure they are reputable companies with honest business practices.
- You can read reviews, see a rating, and determine if they are BBB Accredited.
Read the fine print
- Read the financing agreement in full before signing on.
- Make sure you know:
- What company is financing
- How long the plan lasts and how many installments you will pay
- How they handle late or rescheduled payments
- Whether they charge an interest rate
- If there are any other fees
Know your rights
- As of the May 22, 2024 interpretive rule, buy now, pay later lenders must investigate disputes that consumers initiate, issue refunds for returns or cancellations, and provide periodic billing statements.
Keep your credit in mind
- Most installment plans do not require a credit check to use the service. However, keep in mind that unpaid debts can be sent to collections agencies and can be reported to credit bureaus after a delinquent period of 90 days. This could have a negative impact on your credit score.
