BNPL Popularity May Distort Understanding of Consumer Financial Well-Being
In recent years, buy now, pay later (BNPL) platforms have gained popularity among consumers, offering a convenient way to finance purchases through installments.
However, the lack of transparency surrounding these loans has raised concerns about the potential risks they pose to consumers and the wider economy, Bloomberg reported Tuesday (May 7).
One of the main issues with BNPL platforms is that major companies in the industry do not report these loans to credit agencies, according to the report. Because these debts are not visible to traditional lenders and credit agencies, the true extent of these loans and their impact on consumers’ financial health remains unclear.
Economists and financial experts are increasingly worried about the potential risks associated with BNPL, the report said. Tim Quinlan, a senior economist at Wells Fargo, told Bloomberg that the lack of transparency may lead experts to be “lulled into complacency” regarding consumers’ financial well-being.
The lack of transparency in the BNPL industry stems from a dispute between providers and credit bureaus, per the report. BNPL companies argue that credit agencies cannot handle their information and that releasing it could harm customers’ credit scores. In contrast, credit bureaus claim they are ready to handle the data. This impasse has resulted in little progress towards greater transparency and regulation.
Some consumers say that splitting payments into smaller installments encourages more spending, with over half admitting that it allowed them to purchase more than they could afford, according to the report. Furthermore, BNPL is not limited to big-ticket items, as some users have used it to pay bills or buy essential items like groceries.
While BNPL platforms position themselves as a financial equalizer, offering quick credit approvals and zero-interest deals, critics argue that they disproportionately attract financially vulnerable individuals, per the report. The Consumer Financial Protection Bureau (CFPB) has raised concerns about surprise late fees, hidden interest rates and the potential for individuals to take out multiple BNPL loans simultaneously.
The lack of transparency and reporting of BNPL loans raises concerns about the potential impact on the economy, the report said. Economists at the Federal Reserve Bank of New York believe that the scale of the BNPL industry could impact economic outlooks.
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