‘Buy now, pay later’ loans could soon play a bigger role in credit scores

Francis Creighton, president and CEO of the Consumer Data Industry Association, a trade group for the credit reporting industry, said it was important that pay-back loans are reflected in credit reports so that lenders can get a true picture of the general situation of a loan applicant. credit profile. But because the loans are structured differently from traditional loans, he said, the credit bureaus first had to solve “technical” problems to add them. “We have to make sure we get it right,” he said.

At the same time, the federal Consumer Financial Protection Office has stepped up scrutiny of late-paying businesses. In mid-December, the office opened a query, asking five companies to provide details on their business practices before March 1. The bureau, citing the “explosive growth” of post-payment during the pandemic and during the holiday shopping season, said it wanted to better understand the potential benefits and risks to consumers. The agency said it was also concerned about how companies use the data they collect from customers.

The agency noted that if consumers use the loans for multiple purchases, they may have trouble keeping track of payments. “Due to the ease of obtaining these loans,” the agency said, “consumers may end up spending more than they anticipated.”

Installment payments are generally automatically deducted from debit cards, so buyers can be charged overdraft fees if they don’t have enough money in their accounts to cover payments. If buyers pay installments with a credit card, they can accumulate additional debt and interest on their card if they do not pay the balance of the installments in full.

Additionally, the consumer agency said, pay-back loans have fewer protections than traditional credit cards, such as the right to dispute a charge if a product is defective.

Members of Congress, as well as consumer groups, have called for greater oversight of businesses, noting that because installment loans do not use traditional credit checks, it is unclear whether borrowers have the ability to repay multiple loans.

Here are some questions and answers about buy now, pay later credit:

Ms. Saunders said consumers must be confident that they will be able to meet the required installments in the allotted time. With traditional credit cards, customers have a consistent payment schedule and statement that summarizes all charges, but someone with multiple pay-back loans may have to juggle multiple due dates. “They definitely want to make sure they are on top of their payments,” he said.

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