September 24, 2022

THE Consumer Financial Protection Bureau (CFPB) issued a report detailing that burgeoning Buy Now, Pay Later services are a danger to its customers.
The program is not as simple as its name suggests.
The complexities come from the intention these firms have with their customers. 
Director of the CFPB, Rohit Chopra, stated in his report that firms have essentially created digital, app-driven marketplaces, as a way to lure users into buying more products.
The real issue – it's being powered by personalized behavioral data.
"The Buy Now, Pay Later firms are able to leverage data and user interface design to gamify shopping and lending, promoting repeat usage and further revenue generation," Mr Chopra said in a statement.
The findings were based on a number of market players turning over a range of data and business information. 
Mr Chopra warned users in the statement that the business model is dependent on digital surveillance.
“In some ways, these firms aren’t just lenders, they are also advertisers and virtual mall operators,” Mr Chopra said in the statement.
“Because they are deeply embedded as a payment mechanism for e-commerce, Buy Now, Pay Later lenders can gather extraordinarily detailed information about your purchase behavior, in a way traditional cards cannot,” he added. 
More consumers have started to become comfortable with this method of payment and now use it for everyday items.
This can be worrisome, especially for the younger generation, as paying off debt becomes more difficult due to inflation.
Former Morgan Stanley wealth advisor Andre Jean-Pierre told CNBC, "If these buy now, pay later plans are not adequately budgeted for, they can have a cascading impact across a person’s entire financial life."
The agency vowed to ensure the program is “fair, transparent, and competitive” by implementing four steps.
First, the CFPB will set guidelines or rules to ensure that Buy Now, Pay Later firms adhere to the baseline protections that credit cards must.
Second, the agency will examine the demographic, transactional, and behavioral data collected for uses outside of the lending transaction.
This will include sponsored ad placements, sharing with merchants, and developing user-specific discounting practices.
Third, CFPB staff will create options on how the industry and consumer reporting companies can develop appropriate and accurate credit reporting practices. 
And lastly, Buy Now, Pay Later companies will be subjected to supervisory examinations in the same way credit card companies are. 
The CFPB is inviting firms to self-identify to be examined. 
Buy Now, Pay Later affords customers the ability to purchase items and receive them immediately – but pay later.
Payments are usually over a series of installments.
As the report stated, the program is not new and has been around for decades.
With online shopping gaining more traction, the option has begun to take off.
The plans typically come with interest and late fees and can even be used in the travel and health care sector.
When customers are ready for checkout, there will be an option to pay a small amount instead of the entire balance.
Customers will be prompted to fill out an application asking for their name, address, date of birth, phone number, and Social Security number. 
They will then provide a payment method where a Buy Now, Pay Later provider could perform a soft credit check.
Customers will know if they are approved within minutes.
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