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Nov. 26, 2021, 11:08 a.m. EST

Remember layaway? Now there’s buy now, pay later, but these plans can be ‘deceptive and abusive,’ and prey on struggling consumers

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By Elice Max

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Savage says that over the past two years, 43% of buy now, pay later customers paid a late fee, mostly because they lost track of their installments. Wired magazine recently noted that the Afterpay app collected $64 million in late fees from buy now, pay later users in the 12 months ending June 30, 2021.

If your buy now, pay later plan is linked to a bank account that doesn’t have enough money for the payment, you could then be hit by steep fees from the bank, Marisabel Torres, director of the California Center for Responsible Lending, said at a recent U.S. House Committee on Financial Services hearing about the risks of these programs.

Lauren Saunders, associate director of the National Consumer Law Center, said at that hearing: “Some BNPL products may have deceptive and abusive profit models built on the expectation of late fees from struggling consumers.”

Consumer advocates urge caution before using buy now, pay later plans.

A federal  Consumer Financial Protection Bureau report on buy now, pay later  said: “Because you can qualify for BNPL without passing a hard credit inquiry, make sure you have a good sense of your finances and whether the payments will fit within your budget. Just because you qualify for BNPL, or any other credit product, doesn’t mean you should use it.”

Fewer consumer protections

The agency also warned that buy now, pay later offers lack consumer safeguards of standard credit alternatives.

“BNPL companies don’t offer the same dispute protections as credit cards if the item you purchase is faulty or a scam,” the CFPB report said. Also, it noted, “returning merchandise bought with BNPL can sometimes be complicated.”

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Financial advisers are also telling consumers not to rush into buy now, pay later.

“Retailers have made it so easy to spend, and BNPL loans are yet another example. However, before you click to apply, take your time to know what you’re getting into,” says Matt Schulz, chief credit analyst at the LendingTree website. Read the terms and conditions before applying, he advises.

“Friends Talk Money” co-host Pam Krueger calls buy now, pay later plans “a mind game,” saying on the podcast that some users may think: “‘Oh wow, I can not only afford this thing I’m buying right now, I’ve spent less than I planned. So, now I can get more stuff!'”

But what can then happen, Krueger said, is that the person may unintentionally pile up more credit card debt on other purchases.

If you’re not careful, a buy now, pay later plan could appeal to your worst impulses. You might wind end up buying things you don’t need simply because you can pay for them later.

“You have to understand how to use this tool and use it wisely, so you don’t cut yourself,” said Krueger.

Explain the pros and cons to your adult kids

Savage recommended explaining to your adult children and grandchildren the pros and cons of buy now, pay later. “You may save them some financial trouble,” she said.

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Rossman noted on “Friends Talk Money” that he expects more buy now, pay later regulation will be coming.

Meantime, if you know your budget, and make your payments on time, buy now, pay later could be an effective way to spread out the expense of a large purchase.

Elice Max is a small-business owner, writer, tech enthusiast and marketer based in Australia and originally from Boston.

This article is reprinted by permission from  , © 2021 Twin Cities Public Television, Inc. All rights reserved.

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