Key Points
- “Buy now, pay later” (BNPL) is booming, with shoppers expected to spend over $10 billion using it this holiday season.
- The biggest risk is “shadow debt,” where consumers take on multiple small loans that become difficult to track.
- Attorneys general from seven states have launched an investigation into the leading BNPL companies over consumer risks.
- Regulators worry that consumers don’t fully understand the fees and potential for serious debt.
That “buy now, pay later” button at checkout seems like a simple way to manage your holiday shopping. By splitting a purchase into four smaller, interest-free payments, consumers get their items right away without a big hit to their wallet. It’s a hugely popular option, with one survey showing half of all holiday shoppers plan to use it this year.
But this convenience comes with a hidden catch that experts call “shadow debt.” While a single “pay-in-four” plan is easy to handle, many shoppers use it for multiple purchases from different retailers. Suddenly, they aren’t tracking one loan, but five or ten separate ones, each with its own payment schedule.
According to Kevin King, a risk solutions expert, this makes it incredibly difficult for people to keep track of their spending. The money gets pulled directly from their bank account, and the consequences can be disastrous. “They find out that their rent payment just bounced,” King said, because several BNPL payments were withdrawn the day before, leaving their account empty.
These growing concerns have caught the attention of lawmakers. Attorneys general from California and six other states have launched an investigation into major BNPL providers like Affirm, Klarna, and PayPal. They are demanding more information about the products, fees, and the real risks to consumers who may not fully understand that they are taking on serious debt.
California’s Attorney General, Rob Bonta, warned that shoppers might be tempted by these loans “without fully understanding that they can turn into serious debt and mounting fees.”
