"Buy Now, Pay Later" Seduced a Generation–and Trapped It in Debt
13 days ago
- #BNPL
- #Consumer Debt
- #Financial Regulation
- Layaway was a no-interest, pay-in-pieces system used by stores like Leon’s, K Mart, and Zellers, allowing families to purchase items over time.
- Buy Now, Pay Later (BNPL) programs, such as Afterpay and Klarna, offer digital layaway with immediate possession of goods, leading to rapid market growth.
- BNPL is considered 'phantom debt' as it doesn’t always show up in traditional debt measurements, despite contributing to consumer debt.
- BNPL operates as a microloan without credit checks, with providers assuming risk and merchants receiving immediate payment.
- Late payments in BNPL can result in fees, overdraft charges, and potential loan sales to third-party collectors.
- BNPL exists in a regulatory grey zone, lacking the oversight of traditional credit systems, which can mask financial risks for consumers.
- Originally for occasional purchases, BNPL has expanded to daily expenses like groceries, reflecting growing financial insecurity.
- BNPL is increasingly used for high-cost items like concert tickets, with companies competing for checkout integration.
- The lack of regulation for BNPL contrasts with moves in the US, UK, and Australia to incorporate it into credit scoring and consumer protections.
- Governments mirror BNPL dynamics through deficit spending, raising concerns about future financial liabilities.
- BNPL highlights the demand for flexible repayment structures but also exposes risks of debt accumulation without proper oversight.