Home Consumer debt Buy Now, Pay Later Services Replace Layaway

Buy Now, Pay Later Services Replace Layaway

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Ahead of the 2021 shopping season, Walmart removed its layaway program, one of the last vestiges of this service from a major retailer, and replaced it with the “buy now, pay later” service Affirm.

Layaway allowed customers to make a deposit on an item that would be “put away” or cautioned by the retailer, and get it back later when they paid for it in full. But as other payment methods have taken its place over the years, retailers have removed the option.

BNPL services such as Affirm now allow customers to immediately return the item to their homes, provided they make a series of payments. Affirm has three, six and 12 month payment plans, while the Klarna service has a monthly option. The catch is that customers usually also have to pay interest, which can range from 0% to 30%.

Cliff Robb, associate professor of consumer science at the University of Wisconsin-Madison, said that while the layaway is no longer used often, it allows customers to purchase items without their credit going down. impact.

“These new technologies can introduce negative impacts on credit that people may not be aware of if they haven’t really read the fine print and agreements,” Robb said.

Walmart’s move sparked backlash from consumers who said the layaway was helpful for low-income families trying buy gifts for their families.

Nilton Porto, associate professor of personal finance at the University of Rhode Island, said the removal of the layaway came as no surprise. He said the rise of technology has made it easier for businesses to provide customers with low-value loans (an option that traditional banks typically don’t offer, in part because of concerns. on future regulatory measures).

He noted that Walmart may also have factored in employee schedules when removing the program, given the time it would take to manage purchases.

Robb explained that layaway gained popularity during the Great Depression and became a popular option for those experiencing financial difficulties. But eventually, Robb explained, credit cards supplanted the need for it. Robb said it was a “dying approach to retail,” although there are still other retailers out there, like Burlington Coat Factory, which always offer the option.

He noted that this was not the first time that Walmart interrupted layaway, get rid of the service in 2006 before Bring him back in the aftermath of the Great Recession, when families were struggling.

Buying the items you want in small installments – what once seemed to be the realm of infomercials – has become a popular feature of the retail shopping experience. Several large retailers, including Target, Amazon, and Neiman Marcus, allow customers to make payments using this method. Cyber ​​Monday, income through these platforms increased by more than 20% year after year, according to an Adobe Analytics report.

But their growing popularity has also led to increased surveillance. The Consumer Financial Protection Bureau, which recently opened an investigation into these services, expressed concern about the debt consumers can accumulate through these services and the data these companies collect from their users.

“Buy now, pay later is the new take on the old layaway plan, but with modern, faster twists where the consumer gets the product immediately but also gets the debt immediately,” said Rohit Chopra, Managing Director of the CFPB. in a press release. “We have directed Affirm, Afterpay, Klarna, PayPal and Zip to submit information so that we can report to the public on industry practices and risks.”

In response to the CFPB investigation, a spokesperson for Klarna said by email: “We believe proportionate regulation is a good thing and are setting the standard by providing consumers with an interest-free, fair and sustainable alternative to credit cards. Through this process, we believe these benefits will be made very clear and will continue to work with regulators to educate them on how our products are structured, used and benefit both consumers and retailers.

We want to share data with credit bureaus to help all providers make better lending decisions and ensure financial security and consumer protection. However, credit reports need to be improved and credit bureaus need to update their systems to accept our data. This increased visibility will help providers protect those who are unable to pay and will benefit customers who repay on time and in full with better credit scores. ”

And a spokesperson for Affirmer said: “We welcome the CFPB review and support regulatory efforts that benefit consumers and promote transparency within our industry. For nearly a decade, Affirm has pursued its mission of providing honest, life-enhancing financial products, and we’ve never charged late or hidden fees, ever. We will continue to engage with all of our stakeholders, including regulators, to support efforts that advance our mission. ”

Robb noted that because these services are not explicitly referred to as a form of credit, it helps these companies target the services to younger consumers who are averse to credit cards. Joel Rampoldt, Managing Director of AlixPartners, told Marketplace’s Kristin Schwab that Millennials and Gen Zers are the heaviest users.

Robb said if people went too far on vacation, maybe spending more than they expected, now they might be like, “Oh, man, I have to make this payment and this payment and this payment.” He pointed out that polls show people sexpect more due to availability of these benefits.

And, he added, they could be particularly overwhelmed if they used multiple versions of these apps – no mechanism is in place to stop them.

Robb said he believes we’ll continue to see consumers use these options, which he says require monitoring.

“Consumers need to be aware of what they are getting into,” he said.