What To Know About Consumer Protections With ‘Buy Now, Pay Later’October 9, 2021
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Have you ever purchased a winter coat online, only to discover that it looks nothing like the images you saw on the website when it arrives? While you’ll have to file a complaint with the merchant and possibly the credit card company before being refunded, returning an item and being refunded is usually straightforward when you buy it on a credit card.
But what happens when you purchase the sweater using a ‘buy now, pay later’ loan (BNPL)?
Will you have to keep making installment payments on the item even after you return it? What company do you contact in order to resolve the issue: the BNPL provider, the merchant, or the credit or debit card issuer that you used to finance the BNPL loan?
BNPL, also known as point-of-sale loans, are installment loans that allow consumers to split up the cost of their purchase over time. BNPL options are available nearly everywhere that you shop, with a number of big-name retailers like Walmart, Amazon, Target and Sephora using them. A recent Credit Karma study found that 44% of respondents had used a BNPL product at least once.
Yet as consumers flock towards this new financing method, they should be cautious about them.
“BNPL loans are still new, and government regulations haven’t fully caught up. That means that the short-term financing options generally offer consumers fewer protections,” says Leslie Tayne, founder and managing director at Tayne Law Group.
In fact, the Consumer Financial Protection Bureau recently warned consumers about the tendency to overspend when using BNPL services, the negative impact they could have on credit scores, their late fees and the lack of consumer protections.
Below, Select looks at the consumer protections offered by credit cards, debit cards and some major BNPL providers to help you decide which is better for you.
Consumer protections of credit cards, debit cards and BNPL loans
Consumers are offered a number of credit card protections through the Fair Credit Billing Act. There are two types of complaints consumers can file with their credit card issuer: A billing error or an issue with the quality of a good or a service. A billing error may be an authorized charge, an incorrect charge or a math error. If you have a ‘billing error’, the FCBA requires that credit card issuers conduct an investigation if a consumer files a complaint within 60 days of receiving their account statement.
While the FCBA does not apply to issues with the quality of a good, consumers can still file a complaint with their issuer. Since this type of complaint falls under state laws, consumers are more likely to resolve their issue or be refunded if they meet certain requirements such as having purchased the item in their home state.
The FCBA only applies to ‘open end’ credit…