“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 loans for later repayment be reflected in credit reports. so that lenders can get a true picture of the whole loan seeker. credit profile. But because the loans are structured differently than traditional loans, he said, the credit bureaus had to work through “technical” issues first to add them. “We have to make sure we get it right,” he said.

At the same time, the Federal Consumer Financial Protection Bureau has tightened controls on companies paying later. In mid-December, the bureau opened an investigation, asking five companies to provide details of their business practices by March 1. The bureau, citing the “explosive growth” in earnings later during the pandemic and during the holiday shopping season, said it wanted to better understand the potential benefits and risks to consumers. The agency also expressed concern about how companies use the data they collect from customers.

The agency noted that if consumers use the loans for multiple purchases, they may struggle to keep up with payments. “Because of the ease of obtaining these loans,” the agency said, “consumers may end up spending more than expected.”

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

Also, according to the consumer protection agency, deferred repayment loans come with fewer protections than traditional credit cards, such as the right to dispute charges if a product is faulty.

Members of Congress, as well as consumer groups, have called for greater oversight of businesses, noting that because installment loans don’t use traditional credit checks, it’s 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 should be confident that they will be able to make the required installments within the time allowed. With traditional credit cards, customers have a consistent payment schedule and a statement summarizing all charges, but someone with multiple loans to pay later may have to juggle multiple due dates. “They definitely want to make sure they keep track of their payments,” she said.

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