If You Used BNPL Over The Holidays, Here's What You Should Know

Buy Now, Pay Later (BNPL) usage hit an all-time high over the holidays, according to Adobe’s 2023 holiday shopping trend report. 

That is, a whopping $16.6 billion of a total $222 billion was spent via installment payments. 

The companies offering these programs, including Klarna and Affirm, typically involve an agreement with a consumer to pay for an item with an initial down payment followed by a set number of interest-free installments. They are, in general, easy to use and growing in popularity.

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That rise in popularity comes amid warnings on the hazards of BNPL plans, however, and calls for shoppers to exercise caution when using them, as Kiplinger previously reported. Unlike credit card issuers, which are highly regulated and required to disclose fees and risks associated with taking out a loan, there is no overarching regulatory practice for BNPL companies to do the same.

Late and overdraft fees can pile up

According to an October 2023 report from the Consumer Federation of America (CFA) and the Center for Responsible Lending, “more than 16% of users have incurred late fees over the past six months,” while nearly half of users have incurred overdraft fees. Many BNPL programs are set up on autopay, making it easier than ever to overdraw your account. BNPL fees vary, but can go up to $25.

“BNPL lenders are making it easier for borrowers to use high-cost loans for everyday purchases,” said Peter Smith, a senior researcher at the Center for Responsible Lending (CRA). “At the same time, they are trying mightily to hide the true costs and risks of these loans.”

That concern was also among the topics discussed at a House Subcommittee on Digital Assets, Financial Technology and Inclusion hearing last October. 

“The massive rise in popularity of these kinds of financial products demonstrates that consumers already recognize how these innovations are improving their own lives,” said French Hill (R-Ark.), subcommittee chair, in a statement. “However, changes driven by technology also merit thoughtful consideration of how they affect existing laws and regulations, particularly when laws and regulations inhibit that innovation.”

Legislation on a regulatory framework for digital assets is being drafted, Hill added.

Federal, state governments advise caution

Last September, a Federal Reserve of New York report raised concerns about the potential for BNPL plans to contribute to consumers overspending.

In addition, the Consumer Financial Protection Bureau has begun to investigate and monitor BNPL company practices, and the California state legislature has already taken steps to hold BNPL providers to the same standards as traditional credit card companies by requiring them to abide by state lending laws. The state has also fined a number of providers for making unregulated loans.

The California Department of Financial Protection and Innovation advises consumers to make sure they are adequately informed before making their next big purchase, “so you don’t end up owing more than you bargained for.” One suggestion it offers is to make sure you don’t already have too many BNPL plans open before hitting “checkout” again.

The CFPB encourages consumers to file complaints at its website.

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