Why congressional lawmakers are now paying attention
The buy now, pay later industry is booming. As we first reported last month, this is changing the way people spend money and it’s especially important when shopping this holiday season. Lawmakers take note and ask questions.
In short, BNPL (buy now, pay later) providers offer instant approval, point-of-sale loans through third-party companies like Affirm, Klarna, Afterpay, and Sezzle.
Loans are generally short term – and unlike most credit cards – interest free if you make your payments on time and in full.
WINK News investigative reporter Celine McArthur has looked at this new checkout pick and explains why lawmakers are now paying more attention.
Lawmakers at the House Financial Services Committee in Washington DC are catching up. They ask basic questions about how BNPL works, trying to determine if they should step in to protect you from hidden costs and potentially crippling debt that could lead to a nationwide financial crisis.
Buy Now, Pay Later is a $ 100 billion industry and its rampant growth is shaking up the financial world.
“A recent McKinsey study reports that fintechs buy now and pay later. [financial technology comapnies] embezzled between $ 8 billion and $ 10 billion in revenue from traditional banks, ”said Congressman Stephen Lynch, D-MA.
Congressman Lynch and his fellow lawmakers met with a handful of consumer advocates and fintech association leaders – who represent some of the big buy now, pay later providers – to discuss the pros and cons.
“The use of consumer data, the exploitation of spending patterns, the enforcement of loan laws and the potential for unsustainable consumer debt levels,” says Lynch.
Advocates of Buy Now, Pay Later (BNPL) explain how this service is different, and potentially more attractive, than traditional credit.
“This is not a revolving debt situation. It’s the one in which they want to meet their obligations very quickly and within a short period of time, ”says Penny Lee, CEO of the Financial Technology Association. “And so, it empowers the consumer.”
Consumer advocates expose what they see as red flags and real risks.
“Major lenders buy now, pay later accounted for nearly $ 11 million, or 91% of total consumer loans created in 2020. If there are problems, their impact will be felt at scale,” says Marisabel Torres, Center for Responsible. Ready.
Buyers are not limited to the number of BNPL platforms they can buy from at the same time.
“Multiple loans can be difficult to manage and lead to unaffordable debt,” says Lauren Saunders of the National Consumer Law Center.
Without federal regulation, they say BNPL providers can change the way they operate and use your information at any time.
“Products may not stay free or low cost, or the ultimate business model may be different than it looks,” says Saunders.
Lawmakers have asked if children can use these platforms. Here’s how the Financial Technology Association responded:
Representative Ritchie Torres, D-NY: “Could you legally use the product before the age of 18?” “
Penny Lee, ALE: “I’ll have to double-check this.”
Representative Ritchie Torres, D-NY: “But would you support regulations that require a minimum age of 18 and over? “
Penny Lee, ALE: “I will confirm with our members if there is a minimum age. “
Representative Ritchie Torres, D-NY: “What should be the minimum age? “
Penny Lee, ALE: “I will refer to the members.”
Members of the FTA were not part of this hearing. When lawmakers have questions on Facebook, they call Mark Zuckerberg. Major BNPL providers including Klarna, Afterpay, Sezzle and Affirm weren’t there to talk about the details.
Lawmakers have admitted they need to find out more about the industry before discussing possible regulatory oversight through the Consumer Financial Protection Bureau. We will keep you posted.
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