Latest news with #non-BNPL
CNBC
25-06-2025
- Business
- CNBC
Buy now, pay later plans will soon impact your credit score—what you need to know
One of the benefits of buy now, pay later loans is changing. FICO, the company that calculates most of Americans' credit scores, announced Monday it would be releasing a credit score model this fall that considers BNPL loans, The Wall Street Journal first reported. Banks and lenders will be able to see one score that considers users' BNPL loans and one that does not, and decide which to use as they consider borrowers' creditworthiness, WSJ reports. The three credit reporting bureaus — Equifax, Experian and TransUnion — can then decide which score borrowers see and what's included in their credit reports. "This is an area where I welcome greater controls when it comes to borrowing," says Douglas Boneparth, a certified financial planner and founder of Bone Fide Wealth. Boneparth recently called BNPL plans a "scam" in a LinkedIn post. "If someone who's demonstrated bad borrowing behavior in the past is trying to continue that behavior through buy now, pay later programs, but now is unable to do that because [of] credit reporting, then I welcome those types of controls," he added. Currently, BNPL plans don't directly impact users' credit scores. There's no hard inquiry for users to get approved for the installment loans and if they don't make their payments on time, they typically incur late fees or interest fees. However, they could eventually have their debt sold to a debt collector, at which point the loans could affect their credit scores. Around 40% of BNPL users say no impact to their credit score is one of the top benefits of the plans, according to a recent survey of over 1,000 Americans by affiliate marketing agency PartnerCentric. The same survey found that 45% of users wouldn't change their BNPL use if the plans started affecting their credit score. On the surface, BNPL plans could be useful tools for consumers who may have limited or poor credit histories but need to finance major purchases. In 2022, nearly two-thirds of BNPL loans went to users with low credit scores, a Consumer Finance Protection Bureau analysis found. But data shows some concerning behavior among BNPL users, including taking out multiple loans at once and carrying higher balances, on average, than non-BNPL users, CFPB found. Around 63% of BNPL users took out multiple loans at the same time in the last year and 33% of users borrowed from multiple lenders. Further, partnerships like delivery app Doordash's partnership with Klarna have critics like Boneparth sounding alarm bells because they seem to encourage users to finance smaller purchases that generally shouldn't require a loan. "I think there's a world where buy now, pay later could be a useful tool to help young or early borrowers build good credit, but given the current framework and behaviors, it just doesn't seem that way," Boneparth says. BNPL users routinely spend more than non-users, a recent study showed. Plus, 41% of BNPL users were late on a payment in the last year, a recent LendingTree study found. More traditional methods of building credit, such as using a secured credit card or opening a regular credit card with a relatively small limit, have guardrails in place to help prevent consumers from overextending themselves financially, Boneparth says. But BNPL plans typically don't have those kinds of limits or credit checks, which can allow users to overspend or take on numerous loans at once. Of course, plenty of people get themselves into trouble using traditional financing like credit cards. Ultimately, it's up to individuals to learn how to use financing options wisely. "Using credit requires discipline," Boneparth says. "Whether it's credit card lenders or buy now pay later programs, it is not a great consequence when you cannot make good on [your loans]."
Yahoo
17-06-2025
- Business
- Yahoo
CFPB, consumer groups clash over BNPL
This story was originally published on Payments Dive. To receive daily news and insights, subscribe to our free daily Payments Dive newsletter. Consumer Financial Protection Bureau researchers last week released a study concluding buy now, pay later services are not harmful to consumers, after the federal agency last month jettisoned a rule regulating BNPL. The June 7 study, conducted by two economists in the CFPB's research office, reviewed data from the six largest BNPL companies over several years and found few negative impacts on consumers who use the payment method. That was at odds with findings from a separate CFPB study, published in January, that concluded consumers who used BNPL options were piling on debt. The clash of findings comes as the agency under President Donald Trump turns away from the prior administration's efforts to regulate BNPL. On May 12, the bureau spiked an interpretive rule that would have regulated BNPL purchases like credit card transactions. The rule was first proposed under director Rohit Chopra, who was fired by Trump in February. Buy now, pay later industry providers and supporters say the agency's June study proves that BNPL does not harm consumers, while consumer advocates counter that there is nothing in the research that contradicts their view that buy now, pay later should be tightly regulated. Consumer advocates who reviewed both studies said that neither supports the notion that buy now, pay later products make credit more accessible to consumers with poor credit history or no credit score, an argument often put forth by BNPL companies. The buy now, pay later industry's signature product is a payment split into four installments which are repaid over six weeks, with no interest charges. Some BNPL providers, however, have started offering longer-term loans, some of which accrue interest. The study issued this month found that shoppers who use BNPL to buy goods and services generally don't load up on other types of debt and are overwhelmingly likely to repay BNPL providers in full. 'We do not detect analogous increases in non-BNPL debt balances,' for first-time buy now, pay later users, the abstract for the study said. 'The results do not support a conclusion of negative impacts of first-time BNPL use on the ability of borrowers to repay non-BNPL loan obligations nor on several measures of financial distress.' The research underscores what buy now, pay later companies have long asserted about their products, David Sykes, chief commercial officer for the Swedish BNPL company Klarna, said in an emailed statement. 'BNPL is a smarter, more transparent alternative to high-interest credit cards,' he said. The earlier January study found that 63% of buy now, pay later users took out multiple types of loans, and 33% took out loans from multiple BNPL companies at a time. While the January report raised concerns about what is described as loan-stacking, the June report showed 'the overall debt picture is not negatively impacted,' said Ian P. Moloney, head of policy and regulatory affairs for the American Fintech Council. Consumers are 'maintaining the level of debt that's appropriate for them,' he said. Supporters of the industry were also quick to note that the more recent study found that buy now, pay later users repay their loans 98% of the time. Credit cards, by contrast, have a default rate of around 10%, the study said. The findings are in line with figures released by BNPL companies, said Miranda Margowsky, head of communications for the Financial Technology Association. 'This research confirms our own member company data showing that consumers are using BNPL responsibly and repaying in full and on time,' she said. The latest study did, however, note that most buy now, pay later users must sign up for automatic payments, and 'could be left without sufficient funds to repay non-BNPL debt obligations.' The more recent study also seems to indicate that U.S. consumers who use buy now, pay later services do so infrequently, said Adam Rust, director of financial services for the Consumer Federation of America. 'This says that people dip their toe in BNPL, use it sporadically, and continue to rely on other forms of credit,' he said, noting that the study mirrors his own thoughts on the issue. 'It points to BNPL as something that people use once, and don't really rely on.' Moloney argued that the BNPL industry's signature product is suited to more consumers than some other types of financing because it does not have late fees or accrue interest. The studies don't necessarily contradict one another because they use different data sets, Rust said. The January study reviewed 145 million BNPL applications made between 2017 and 2022. The study released last week reviewed a 16% random sample of loan applications from the six largest buy now, pay later providers between 2019 and 2022. Also, the latest study focused more on first-time users. A CFPB spokesperson did not respond to a request for additional comment about the findings of either study. Lauren Saunders, associate director for the National Consumer Law Center, contended the latest CFPB study didn't counter earlier research that raised concerns over BNPL use. "The June study does not refute the negative impacts of buy now, pay later credit found by other studies and surveys," Saunders said. She referred to a May report from the research firm Bankrate that found roughly half of BNPL users had experienced some type of setback, be it a missed payment or a problem with refund. Also, a survey by the loan marketplace LendingTree released in April said 41% of U.S. consumers who use buy now, pay later services had made a late payment within the last year. Research on buy now, pay later must continue because the number of consumers and merchants who use and offer the service is still comparatively low, stressed Chuck Bell, programs director for Consumer Reports. The Bankrate survey results showed 30% of U.S. adults said they had used BNPL at least once. 'The researchers are careful to point out that the average amounts of BNPL debt assumed by borrowers [in the June study] are very low, and may increase over time as BNPL becomes more widely adopted by merchants and consumers in multiple sectors of the economy,' he said. Recommended Reading Apple launches Affirm BNPL option Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
