Experts reveal potential pitfalls of 'buy now, pay later' companies for consumers
CHICAGO (CBS) – CBS 2 recently reported on a Chicago-based furniture company that failed to deliver on thousands of pre-paid orders.
Among the victims were a suburban couple. Complicating matters for them and many others were the use of "buy now, pay later" finance companies.
CBS 2's Lauren Victory dug into what that means and the potential pitfalls for consumers.
"We don't like surprises," said Apurva Bose.
We introduced you to Apurva and Amanda Bose who said that about learning the gender of their upcoming baby.
But it might well have been about the missing furniture in their nursery, front room, and basement. That's because Chicago-based Interior Define took their money, but never brought any furniture.
"We'd paid like half," Apurva said. "We can't buy any more furniture without the money."
The Bose family paid with Affirm, a buy now, pay later company. That complicated their ability to dispute the $8,000 charge and get a refund.
So, Victory went to two consumer experts to learn more: Annie Millerbernd with Nerd Wallet and Ted Rossman with BankRate.com.
Victory: "This concept of buy now, pay later, what does that mean?"
Rossman: "We're talking about companies like Affirm, Afterpay and Klarna. Some people call it reverse layaway. It's basically a twist on that old concept, although in this case, you get the merchandise right away."
The popularity of the business model has exploded. Consumers took out 180 million loans in 2021, totally more than $24 billion.
Victory: "What would be a typical situation for someone to choose buy now, pay later?"
Millerbernd: "Folks who don't want their credit or income to be considered, so folks with lower credit scores and still get interest free option."
One potential pitfall can occur when you need to undo a transaction, whether it's a refund or a dispute involving, say, undelivered furniture.
Victory: "Can you talk about what makes that so tricky?"
Rossman: "That's one of the biggest pain points I hear about with buy now, and it's really true. Maybe there's a delay in processing the refund because it's not just you and the merchant anymore. It's this intermediary so there's a crowd.
"The buy now, pay later industry is not held to the same standards as credit card companies."
Even if you make regular returns, getting a refund might not be so simple.
Millerbernd: "It can take a long time for that process. So you give your item back to the merchant and then you have to process the refund. You still have to make your payments during that time."
The Consumer Financial Protection Bureau, a federal agency, is looking into buy now, pay later firms.
The CFPB, along with our experts, advise
As for the Bose family, Affirm promised to stop the payments and a full refund. They've received part of the money back with a promise that the rest will arrive shortly.
