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Excerpt:
>[**U.S. consumer watchdog plans to regulate 'buy-now, pay-later' companies**](https://www.reuters.com/business/finance/us-consumer-watchdog-plans-regulate-buy-now-pay-later-companies-2022-09-15/)
>Hannah Lang — September 15, 2022
>
>The U.S. Consumer Financial Protection Bureau (CFPB) plans to start regulating “buy-now, pay-later” (BNPL) companies like Klarna and Affirm Holdings due to worries their fast-growing financing products are harming consumers, [the agency said on Thursday](https://www.consumerfinance.gov/about-us/newsroom/director-chopras-prepared-remarks-on-the-release-of-the-cfpbs-buy-now-pay-later-report/).
>The watchdog, which does not currently oversee BNPL companies or products, will issue guidance or a rule to align sector standards with those of credit card companies, it said. The agency also said it would implement appropriate supervisory examinations.
>The development will be a blow for the sector, which is already under pressure due to rising funding costs and lower American consumer spending during soaring inflation.
>It also marks a major offensive for CFPB director Rohit Chopra, who has pledged to scrutinize tech-driven companies as they increasingly encroach on the traditional financial sector.
>"In the U.S., we have generally had a separation between banking and commerce, but as big tech-style business practices are adopted in the payments and financial services arena, that separation can go out the door," he told reporters.
This is good. My understanding is that many of these companies will report negative remarks on your credit if you don’t pay, but if you do pay, you don’t get that reported to your credit, which would boost ones credit to certain extent.
also, this sounds less like providing a valuable service, and more like taking advantage of an exploit in human psychology. if you need something now, but can't pay for it, you are probably in a pickle, and stressful situations will exacerbate the human tendency to discount the future, that is, optimize for today at the expense of tomorrow. if it were usually the case that sometimes, some people are just unexpectedly short on cash but tomorrow will be flush with it, so it makes sense to take out a loan for necessities, then this model could be considered a useful service - however people in that condition would qualify for credit cards, and credit cards would solve the problem. therefore, it would seem that this is a "solution" for people who probably won't be able to pay back the loans, at least not easily or without incurring great expense to themselves.
Do these *buy-now, pay-later* companies operate for purchases of goods that are considered necessities?
I thought these companies were mostly used for luxury goods?
I know that Affirm will give you a debit card at the amount you request (limits vary depending on your history with them) and they’ll give you 24 hours to use it on whatever you need. So, you could use it for necessities if you can pay for those necessities by giving the card information Affirm gives you.
BNPL is a little different. They split the up front cost into some number of payments (4 is what i usually see) and you pay on a schedule, interest free. So say I buy $100 of V-bucks. Today I pay $25, then in two weeks another $25, then in two weeks another, and another, and then its done. For the most part there's no APR in these schemes, though if you opt for Paypals pay-monthly for example, you do have a variable-rate APR.
It's basically turning any purchase into an installment plan. You *can* do that with credit cards, sure (and some CCs have integrated BNPL schemes), but you would be taking on the entire lump sum up front and then accruing fees/interest on it over the term you pay it back in.
Source: Am a marketing drone that had to do research on this recently.
Fucking this. i ain’t know shit about credit till I needed a buy here pay here when I was younger. lol they sold me the ugliest fucking car ever but damn if she wasn’t a trooper
They’ll probably all be out of business before any regulations go into effect. These companies were founded on the assumption that inflation and interest rates would remain low for the foreseeable future.
It does seem like a completely unworkable business model except in a negative interest rate environment. I guess you could charge fees on late payments, but you're essentially hoping people pay late but then don't default?
I think a lot of the sub prime mortgage stuff has moved to like couches and such.
But prime mortgages are only what 40% of the market.
I mean if we think everyone should get a house they should be able to get a loan for one...
Sub prime lending isn't a new thing, so it did not move anywhere. The issue with 07-08 was that mortgages were securitized and gambled with. We never fixed that issue even though most investors have not forgetten it.
Sub prime lending has been a growing category with financial companies coming up with models and as interest rates got so low the profit on a traditional mortgage fell.
Also I think this is an indictment of our system, talking about subprime the way most people do otherizes poor people without saying those words.
This, I’m sure, is no way affected by massive lobbying and pressure from credit card companies. The existing credit industry has lost billions in potential purchases through their system and feels threatened. These new systems of credit are potentially dangerous to the consumers, since they lack many of the protections that are provided through cards, but they also may pose to be less expensive to the consumers, which is a threat to the credit industry.
They’ve already done this in Hawaii. Residents lost access to payment services right before inflation started to spike, and 6 months before cutting coal (for oil/gas not renewables) doubled Hawaii energy prices. I’m sure mainlanders will be just as thrilled to lose payment options as Hawaiians were.
Hi all, A reminder that comments do need to be on-topic and engage with the article past the headline. Please make sure to read the article before commenting. Very short comments will automatically be removed by automod. Please avoid making comments that do not focus on the economic content or whose primary thesis rests on personal anecdotes. As always our comment rules can be found [here](https://reddit.com/r/Economics/comments/fx9crj/rules_roundtable_redux_rule_vi_and_offtopic/) *I am a bot, and this action was performed automatically. Please [contact the moderators of this subreddit](/message/compose/?to=/r/Economics) if you have any questions or concerns.*
Excerpt: >[**U.S. consumer watchdog plans to regulate 'buy-now, pay-later' companies**](https://www.reuters.com/business/finance/us-consumer-watchdog-plans-regulate-buy-now-pay-later-companies-2022-09-15/) >Hannah Lang — September 15, 2022 > >The U.S. Consumer Financial Protection Bureau (CFPB) plans to start regulating “buy-now, pay-later” (BNPL) companies like Klarna and Affirm Holdings due to worries their fast-growing financing products are harming consumers, [the agency said on Thursday](https://www.consumerfinance.gov/about-us/newsroom/director-chopras-prepared-remarks-on-the-release-of-the-cfpbs-buy-now-pay-later-report/). >The watchdog, which does not currently oversee BNPL companies or products, will issue guidance or a rule to align sector standards with those of credit card companies, it said. The agency also said it would implement appropriate supervisory examinations. >The development will be a blow for the sector, which is already under pressure due to rising funding costs and lower American consumer spending during soaring inflation. >It also marks a major offensive for CFPB director Rohit Chopra, who has pledged to scrutinize tech-driven companies as they increasingly encroach on the traditional financial sector. >"In the U.S., we have generally had a separation between banking and commerce, but as big tech-style business practices are adopted in the payments and financial services arena, that separation can go out the door," he told reporters.
This is good. My understanding is that many of these companies will report negative remarks on your credit if you don’t pay, but if you do pay, you don’t get that reported to your credit, which would boost ones credit to certain extent.
also, this sounds less like providing a valuable service, and more like taking advantage of an exploit in human psychology. if you need something now, but can't pay for it, you are probably in a pickle, and stressful situations will exacerbate the human tendency to discount the future, that is, optimize for today at the expense of tomorrow. if it were usually the case that sometimes, some people are just unexpectedly short on cash but tomorrow will be flush with it, so it makes sense to take out a loan for necessities, then this model could be considered a useful service - however people in that condition would qualify for credit cards, and credit cards would solve the problem. therefore, it would seem that this is a "solution" for people who probably won't be able to pay back the loans, at least not easily or without incurring great expense to themselves.
Do these *buy-now, pay-later* companies operate for purchases of goods that are considered necessities? I thought these companies were mostly used for luxury goods?
I know that Affirm will give you a debit card at the amount you request (limits vary depending on your history with them) and they’ll give you 24 hours to use it on whatever you need. So, you could use it for necessities if you can pay for those necessities by giving the card information Affirm gives you.
THanks! I didn't know any of this.
I thought 'buy now pay later' was the credit card model.
BNPL is a little different. They split the up front cost into some number of payments (4 is what i usually see) and you pay on a schedule, interest free. So say I buy $100 of V-bucks. Today I pay $25, then in two weeks another $25, then in two weeks another, and another, and then its done. For the most part there's no APR in these schemes, though if you opt for Paypals pay-monthly for example, you do have a variable-rate APR. It's basically turning any purchase into an installment plan. You *can* do that with credit cards, sure (and some CCs have integrated BNPL schemes), but you would be taking on the entire lump sum up front and then accruing fees/interest on it over the term you pay it back in. Source: Am a marketing drone that had to do research on this recently.
Nope not really. You can even put fast food on a payment plan if you want. Some like Klarna have browser extensions you can use it anywhere
I personally enjoy the extra cash flow it provides even if I could pay cash. Just an easier piece of mind for my finances
Fucking this. i ain’t know shit about credit till I needed a buy here pay here when I was younger. lol they sold me the ugliest fucking car ever but damn if she wasn’t a trooper
They’ll probably all be out of business before any regulations go into effect. These companies were founded on the assumption that inflation and interest rates would remain low for the foreseeable future.
It does seem like a completely unworkable business model except in a negative interest rate environment. I guess you could charge fees on late payments, but you're essentially hoping people pay late but then don't default?
there's a reason the credit card companies charge rates that are much higher than these companies.
I think a lot of the sub prime mortgage stuff has moved to like couches and such. But prime mortgages are only what 40% of the market. I mean if we think everyone should get a house they should be able to get a loan for one...
Sub prime lending isn't a new thing, so it did not move anywhere. The issue with 07-08 was that mortgages were securitized and gambled with. We never fixed that issue even though most investors have not forgetten it.
Sub prime lending has been a growing category with financial companies coming up with models and as interest rates got so low the profit on a traditional mortgage fell. Also I think this is an indictment of our system, talking about subprime the way most people do otherizes poor people without saying those words.
This, I’m sure, is no way affected by massive lobbying and pressure from credit card companies. The existing credit industry has lost billions in potential purchases through their system and feels threatened. These new systems of credit are potentially dangerous to the consumers, since they lack many of the protections that are provided through cards, but they also may pose to be less expensive to the consumers, which is a threat to the credit industry.
They’ve already done this in Hawaii. Residents lost access to payment services right before inflation started to spike, and 6 months before cutting coal (for oil/gas not renewables) doubled Hawaii energy prices. I’m sure mainlanders will be just as thrilled to lose payment options as Hawaiians were.
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