In recent years, “buy now, pay later” services have become increasingly popular among shoppers as a convenient payment method. These services allow purchases to be spread out over several weeks or months, with minimal or no interest charges. Third-party companies such as Affirm and Klarna offer these payment plans to consumers. While this flexibility can be beneficial for small businesses, there are also risks involved that they should be aware of.
One major risk is that if something goes wrong with a buy now, pay later transaction, consumers may incorrectly blame the small business. In 2021, more than 13% of buy now, pay later transactions involved disputed charges or returns at five large BNPL firms, resulting in $1.8 billion in disputes. Additionally, small businesses are charged fees ranging from 1% to 3% for offering these payment plans, which can impact narrow profit margins.
To address consumer complaints related to refunds and disputed transactions, the Consumer Financial Protection Bureau (CFPB) issued a new rule in May requiring buy now, pay later companies to provide consumers with the same legal rights and protections as credit card lenders. This includes the ability for consumers to dispute charges, receive refunds for returned items directly from the lender, and access billing statements. Lenders must investigate disputes and suspend payment requirements during the investigation, credit refunds to shopper’s accounts for returned products, and provide billing statements similar to traditional credit card companies.
The CFPB’s regulations aim to bring consistency to the buy now