Home Credit inquiry Buy now, pay later: Harvard researcher warns of youth problem

Buy now, pay later: Harvard researcher warns of youth problem


A Harvard researcher says if you’re using ‘buy now, pay later’ there’s a problem – and it’s popular with young people.

Buy now, pay later options appear to be cost-effective, convenient and popular with younger consumers.

But it’s those consumers who, according to Harvard researcher Marshall Lux, can’t afford to be hurt.

“Three years ago people were talking about Peloton bikes, now people are buying sneakers, jeans, socks,” said Mr. Lux, a fellow at Harvard Kennedy School’s Mossavar-Rahmani Center for Business and Government. CNBC.

“When people start buying household goods on credit, it signals a problem.”

This week, more than 100 community groups in Australia, led by Financial Counseling Australia, signed an open letter to political parties and independent candidates calling on the next parliament to make the BNPL market safer.

“We are writing about the harms we are seeing from the use of unregulated buy-it-now, pay-later and payday advance credit products,” they wrote.

Organizations involved in the campaign include financial advisory and legal advice groups, as well as major charities like Anglicare and the Salvation Army.

Like Mr Lux, they are “deeply concerned” that people using BNPL are “just getting by” as the cost of living rises.

Customers who miss a payment on BNPL may face penalties, including late fees and deferred interest.

They believe a big problem is that BNPL suppliers are not legally required to assess their customers’ ability to repay their debts.

“As the use of these credit products increases, so does the damage they cause,” the letter read.

“Financial advisers are finding that a large number of clients are struggling to pay their debts from BNPL and payday advances, with many people having become over-committed and some having debts with multiple suppliers.”

They want an independent investigation to inform new regulatory protections, like in the UK.

The UK commissioned an independent review chaired by former Financial Conduct Authority boss Chris Woodward. It was released early last year.

In December, the US Consumer Financial Protection Bureau announced it was investigating Affirm, Afterpay, Klarna, PayPal and Zip.

The financial watchdog said BNPL had seen “astronomical growth” and feared BNPL was encouraging consumers to spend more than they could afford.

“To the buyer, it may seem like they’re getting something for nothing. And that can be appealing because not only is it convenient, but instead of an upfront cost of $100, they pay $25,” the CFPB said in a statement in January, calling for public comment.

“But we are concerned that there may be underlying systemic issues, particularly around debt accumulation, regulatory arbitrage and data collection in an already rapidly changing consumer credit market. with technology.

“To some people, BNPL might look like a standard form of payment when they are actually taking on a new form of debt.”

According to Mr Lux, without much regulatory oversight, the BNPL market currently exists in “a gray legal space”.

“Let’s do a stress test,” he said. “It has the potential to be a pretty big bubble.”

A report by the Reserve Bank of Australia found that the two largest listed Australian BNPL providers had around six million active users as of December 2020.

In a 2021 survey of credit card usage in Australia, 67% of Gen Z respondents said they had used buy-it-now, pay-later services in the past six months, according to Statisticsca.