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Brigid Bergen: It's the Brian Lehrer Show on WNYC. Welcome back, everybody. I'm Brigid Bergen from the WNYC and Gothamist newsroom filling in for Brian who is off today. The option to Buy Now and Pay Later has attracted shoppers since the start of layaway. It used to mean stores would hold the items you want until you pay off the cost of them, usually stretched out over a few payments. Once you completed those payments, you got the things you paid for. Today, you can get a $1,000 sofa in your living room before you finish payments, and, yes, the cost is still conveniently spaced out over four payments or so with the promise of no or minimal interest.

You can use a Buy Now Pay Later with almost anything these days, from groceries and gas to furniture, and your morning cup of coffee. Of course, convenience comes with costs if you're not careful. Although it sounds like a form of credit, it's not regulated in the same way. This affects Buy Now Pay Later companies, stores that offer it, and consumers that use it differently. Joining me now to explain the Buy Now Pay Laters of today, and what to be aware of when you are using the service is Nikita Aggarwal, Postdoctoral Research Fellow at UCLA's School of Law who has been studying Buy Now Pay Later services. Hi, Nikita, welcome to the show.

Nikita Aggarwal: Hi, Brigid. Thanks for having me.

Brigid Bergen: And, listeners, we want to hear from you too. What has your experience been? Why did you choose to Buy Now and Pay Later and what did you use it for? What did you buy? Was it a nightmare to return those items if you had to? Call us at 212-433-9692. Maybe you've had to rely on this option to Buy Now and Pay Later more lately with the prices of everyday goods going up. Again, that number 212-433-WNYC, that's 212-433-9692. Professor, why use Buy Now Pay Later services? Why not just use a credit card for a big purchase or purchases if you're not ready to pay for it in full?

Nikita Aggarwal: The main attraction of-- We're talking particularly about these new Buy Now Pay Later products, which are interest-free, at least for the short-term, so they're paying for a period, and the obvious advantage is that you can delay payment at no extra cost provided that you repay in time, so it seems like a no brainer for a consumer to spread out payments and smooth consumption.

Brigid Bergen: You made a note there that I think is really important. As long as you pay in time. Are these pay installments actually interest-free? Is that time the key issue here?

Nikita Aggarwal: Yes. That's the big issue that's causing a lot of concern and has attracted regulatory attention. Most of these products are advertised and they are formerly interest-free in the sense they have no upfront interest rates, so consumers can take out, buy the sofa that you mentioned and just spread out the payments over a period of six weeks, instead of four equal installments and pay zero interest. You just pay for the cost of the sofa, but you spread out those payments.

However, many of these products carry late payment fees. That's the catch, if you like, which is that if you do go beyond that period and you don't pay in time, then you could be landed with a late payment fee. The real question is, well, are consumers paying a lot of late payment fees, and if they are, then it's really essentially like interest, but they are tricked into believing that they're not going to be paying more.

Brigid Bergen: Okay, if the customers are paying little interest on each of these payments, then how do these companies actually make a profit?

Nikita Aggarwal: It's similar to a credit card model where, basically, these companies are taking a cut of the transaction so it's like an interchange fee or transaction fee. Merchants are actually willing to pay quite high fees because Buy Now Pay Later is really increasing their sales volume to the scale effect. They can pay 3% to 6% of the transaction because they're getting more transactions overall and so it's still profitable for them.

Brigid Bergen: Wow, 6%. [chuckles] That seems huge.

Nikita Aggarwal: Well, that's the tip of the iceberg. I think one of the things that's potentially misleading is that you have these large companies like the Affirms and Afterpays of the world that may be able to negotiate these lucrative contracts with large merchants who can pay these fees and so it might be sustainable for them to run this business model and potentially not rely so much on charging fees, but there are many other Buy Now Pay Later companies who don't have the power to negotiate those kinds of fee arrangements. The concern is that they may need to rely on fees in order to be profitable.

Brigid Bergen: You raised the comparison to credit cards. I'm wondering, are Buy Now Pay Later services subject to the same rules and regulations as banks? How are shoppers protected or aren't they protected at all?

Nikita Aggarwal: Formally, there was very little protection for the Buy Now Pay Later products. One thing to bear in mind is that some of the Buy Now Pay Later lenders are also banks, so they may be regulated as entities but for these particular products they're not regulated. Then in other cases, these products are being offered by entities that are not regulated, so there's a distinction between activities and entities. With respect to Buy Now Pay Later products, intentionally or not, they have been structured in a way that falls outside some of the key consumer protections and particularly protections that would apply, obviously, to credit card transactions and otherwise, or credit products that would require a disclosure of the cost and give, for example, defenses to the consumer to dispute a transaction.

Those things don't apply and it's primarily because of the way in which the charge has been structured. There's no interest, but there are late payment fees and because of that, and because of the four installment structure it falls outside one of the key regulatory frameworks. In other cases, there are laws that should technically apply to this as a form of credit but there's ambiguity because they're being pitched as payment services. I think this has created some uncertainty as to which laws do apply. I said at the outset formally they don't apply.

Some, many maybe, Buy Now Pay Later companies will tell you that, well, we might not be required to carry out affordability checks or to disclose various things, but we do that anyway, and actually, we do it better because we use better data than the credit reference agencies. There's a gap between what the industry perceives as going on and I think what regulators perceive is going on.

Brigid Bergen: I want to bring one of our callers in, Warren from Brooklyn, who I think may have some experience with a type of Buy Now Pay Later system. Warren, is that right?

Warren: Yes, it's right. Yes, just the other day I was going through my credit card statement and looking at some summer purchases, and without even asking my credit card prompted me to say, "Hey, do you want to spread out the payments for this purchase?" So I took advantage of it. I read all the fine print. It said, "No see, no interest, and you can pay over 18 months." I said, "Sure. I'll take that option and keep my money for another day."

Brigid Bergen: Just to be clear, Nikita, is this the same type of model that you're talking about?

Nikita Aggarwal: It's interesting to me because you mentioned, Warren, I think, a repayment of 18 months at zero interest which is unusual. We're typically looking at a six-week period for most of these interest-free Buy Now Pay Later products. Is that right that I hear you correctly, 18 months?

Warren: Yes, they gave an option to do 6 months, 12 months or 18 months. It was on the first time that you use this plan. I think the next time that if I wanted to spread out a payment it might charge me a fee or a little bit of interest, I'm not sure, but I'll definitely use the introductory offer.

Brigid Bergen: [chuckles] Warren, you this was in connection to a credit card that you had, correct?

Warren: That's right. I have a Chase credit card, and, again, I wasn't even looking to spread out the payment. I was just looking at my credit card statement, and they had the offer for anything over $100. Then they said you can make it on the payment plan if you wanted to.

Brigid Bergen: That's interesting. Professor, would that be possibly how credit cards are responding to these types of services by offering similarly structured payment plans that are part of a payment system that either a consumer already has or is maybe more familiar with?

Nikita Aggarwal: Yes, not knowing much about this particular product it strikes me as an effort by credit card companies to compete and reclaim market share and potentially attract consumers with introductory offers that don't necessarily persist beyond that. Maybe the first time you use it, this is what you get, but there's obviously a concern amongst those of us who care about consumer protection that consumers could then be lured into not is there a longer-term transaction where you end up having to pay interest or paying or consuming more than you actually can afford.

Brigid Bergen: Are there specific changes that you think would make buying now and paying later both financially safer for maybe the shoppers and more sustainable for some of these larger Buy Now Pay Later companies?

Nikita Aggarwal: Yes, I think particularly on the consumer side. One of the problems, in my view, with Buy Now Pay Later one of the bigger problems is in the digital experience and the fact that because a lot of this is happening online, these payment services, these Buy Now Pay Later options are so seamlessly integrated into merchant websites. It's just become far too easy to take on debt. I think that a large part of the response needs to be targeted. This regulatory response needs to focus on the digital consumer choice architecture.

Making it harder for consumers to just choose the Buy Now Pay Later later option and say, "We'll buy this because we don't need to pay-- We only need to pay a fraction of the price today day so it seems very cheap. That's going to be one part of it. How do we change the default settings? How do we encourage consumers through their online experience to make more prudent financial decisions? Then the other side is what the lenders need to be doing.

I think a large part of that is carrying up more robust affordability checks. We don't really know what they are doing and what they aren't doing, but certainly, the regulation requiring them doesn't really apply to many Buy Now Pay Later products, at least these short ones that are notionally interest-free. To the extent they don't need to carry out affordability checks, obviously, the concern is that people are taking on credit that they can't afford.

The FEDS recently included Buy Now Pay Later for the first time in their survey of household economics. It found that of the, I think it was 10% of some 10,000 survey respondents who had used Buy Now Pay Later in the last year and this data was collected in end of 2021, over 50% said that they were using Buy Now Pay Later to buy something that they would not otherwise have been able to afford. Now that's a very concerning response.

Brigid Bergen: That percent speaks to the volume of people who are using this option, but do we have any sense of the average amount of debt that an individual consumer or a family might be going into using these different types of plans?

Nikita Aggarwal: I don't have those figures off the top of my head. There's also, it's probably difficult to estimate, but yes, certainly, the concern about people buying things that they can't afford, obviously suggests that there is a risk of over-indebtedness as a result of Buy Now Pay Later but in terms of the actual quantum of that debt I wouldn't be able to tell you that.

Brigid Bergen: Listeners, we want to hear from you about your experience with buy now and pay later. What did you use it to buy? Have you had any trouble when you were trying to return something, if you used that type of system? Call us at 212-433-9692. Maybe you've had to rely on this option because of the cost of everyday goods. Maybe you've tried a couple of different platforms and maybe you're buying now and paying later using a couple of different systems.

Or maybe you figured out the hack to make the most of this type of plan. We want to hear all of those stories. Again, the number 212-433-9692. If you're just joining us, I'm Brigid Bergen from the WNYC and Gothamist Newsroom filling in for Brian today. Our guest is Nikita Aggarwal, post-doctoral research fellow at UCLA's School of Law. You recently spoke to Buy Now Pay Later industry leaders. Who is leading in the sector and what did you hear from them?

Nikita Aggarwal: We had an off the record round table sometime earlier this year with representatives of the industry including Afterpay and Affirm. These are amongst the leaders, including in addition, Klarna which is another big company in this space. Sezzle and I believe Zip is another one. I think those are the companies that have been targeted by the Consumer Financial Protection Bureau in their market monitoring inquiry, which was launched in December. They've asked these firms to provide more information.

Brigid Bergen: I'm wondering to what extent changing shopping trends have affected these companies. Buy Now Pay Later is almost a decade old. Are shoppers using it today in a different way than perhaps say before the pandemic?

Nikita Aggarwal: Yes. It's not a coincidence that we've seen an explosion in Buy Now Pay Later during the period of the pandemic. People are at home and eCommerce spikes. It's not a coincidence that these things are very much connected and more broadly the fact that Buy Now Pay Later is now integrated into eCommerce as opposed to being a bricks-and-mortar option. Again, affects, as I said before, the ease with which consumers can take out credit, can borrow using these services.

Certainly the move towards more online retail, the pandemic, where people were shopping much more at home as a result, and, I guess, the increasing sophistication of merchant websites and the ability to integrate these payment options so that you just have to click once and you can secure whatever, that sofa that you really wanted, very easily have all contributed towards, I think, this trend.

Brigid Bergen: Interesting. I want to go to one of our callers, Lisa in Chicago. Lisa, thanks so much for listening and tell us about your experience with Buy Now Pay Later.

Lisa: Hi. Yes, I just want to call in and say that I use it pretty regularly. I tend to use Afterpay and I think I used Affirm once or twice. I haven't run into any issues with missing a payment and having to pay more in interest or anything like that. I will say that I am buying a lot more stuff than I would if I had to pay for it all at once so that's something I need to keep in mind.

Brigid Bergen: Lisa, would you say that you're using it are we talking big-ticket purchases? Did you just move and buy a new couch? Or is this how you are managing your budget? Are you using it for groceries or new clothes? What is the way that you're using it?

Lisa: I'm using it for things like new clothes and household goods that I probably don't need, but really want. If a sweatshirt is a few hundred dollars, if I was just going to pay it up front I might say no, I really don't need to do that. If I can break it into four payments, I do the calculations in my head and I decide, okay, yes, I can buy that shirt.

Brigid Bergen: Interesting. Lisa, thank you so much for listening. Thanks for calling. Please call us again. Let's go to Gloria in Westchester. Gloria, welcome to WNYC. You have a slightly different experience, it sounds like, with Buy Now Pay Later.

Gloria: Yes, I do. My experience has been I was an Affirm addict in the very beginning. Just like you guys were talking about, I tended to-- In the beginning I bought things that I just really wanted and maybe I'll pay for it, I would always tell myself. Just buy it now and then when you get paid, you'll pay off the whole thing. Then it started snowballing because, of course, the way that Affirm breaks down your payments, like sometimes it's four payments, but most of the time you can choose to pay it over a year. You'll have payments that are as low as $12.

When you get into the cycle of buying everything that way I ended up spending about $250 a week. I racked up $10,000 with Affirm that I didn't even realize I had racked up because everything I was buying, I was buying now and paying later. Some of it were things I would buy in the store, but most of it were things that I would not buy if I had to pay a lump sum. It does sneak up on you. I have now paid down my $10,000 Affirm debt to $3,500. Once I pay it off, I am absolutely done with Buy Now Pay Later.

Brigid Bergen: I thank you for that story, Gloria. Congratulations on paying down your debt. I hope you got some stuff that was valuable to you and that you've enjoyed as a result of it, even if it meant having some of that debt sneak up on you. Thank you for calling. Please call us again. I want to go to Brandi in Harlem who has a different take on Buy Now Pay Later. Brandi, welcome to WNYC.

Brandi: Hi, thank you. I really love the show. I'm so sad he's on a break, but I'm sure he needs it. As far as me, I've used Klarna for some time now. I bought things that I really need that I could not afford at that time. Thankfully, it's worked out with me with not having to miss a payment. I haven't seen all those scary things where interest racked up, but it has worked out for me.

I wanted to know why so many financial people see this as such a detrimental thing. It has worked well for me, so I just really want to understand why I should stop using it. There is one thing I did want to add. It does snowball. I have to really pull back and say, "All right, this is it for this month. Don't get anything else on this stupid app, and go save some money. I understand where folks may feel like it's scary because it can be if you don't have that self-- What's the word I'm looking for?

Brigid Bergen: Discipline.

Brandi: Control, but otherwise, for things that I can't-- I do need great shoes for my feet, and they're almost $300. I'll buy like one at a time so that I can use them and still pay them off and not be out of $300 at once. That's all I had to say. I love the show I'm always tuning in.

Brigid Bergen: Well, Brandi, thank you so much for listening. Thank you for sharing your experience with the service. I feel like you both asked your question and answered it. Nikita, how would you respond to some of what you heard from those callers?

Nikita Aggarwal: It's really just so interesting for me to hear your experiences, and also the diversity of experiences. I think it pretty much confirms what we've been saying and what the concerns are. It's a double-edged sword. We have consumers like Brandi and Lisa who have self-control, and they're able to repay on time, and for them, it's great, because why pay now when you can pay later? That's clearly the whole point.

Then you have consumers like Gloria, who is experiencing exactly the problems or the harms, rather that we're concerned about, which is that as she says, she became or she was an Affirm addict, racked up debt, didn't keep control of it, and snowballed, and it sneaks up on you. All of these things are really just alarm bells in my mind because for consumers like Gloria, it's resulting in too much debt. That's not something that she wants. It's undesirable, even if she thought she wanted it at the moment she bought the item, she didn't want to end up with $10,000 of debt two or three months down the line.

It's consumers like Gloria who we are trying to protect. We need to protect consumers like her by ensuring that it's not so easy to get into it, by ensuring that you have a better awareness of how much you're taking on. Whether that means making it harder to click through to the Buy Now Pay Later option, or removing auto-pay once you're done with a particular transaction, whatever it is, there are various solutions that we can think of. It's people like Gloria who we're concerned about and who we need to protect with the law.

Brigid Bergen: Sure, and it sounded like Brandi also was raising how that could be an issue. The very issue that Gloria laid out there was something that she described if you couldn't get into that cycle, those great shoes are expensive. Let's talk to Paul in Montclair, New Jersey, who has an experience with what sounds like a medical version of Buy Now Pay Later. Paul, welcome to WNYC.

Paul: Thanks. Yes, that's exactly right. I got some dental work done, just a routine visit, and I hadn't gone since before the pandemic. I just had a couple of things going on, and they were telling me how much it was going to be. Then I said, "Man, there's no way I'm going to be able to do this." They, basically, offered me this plan. It's called Care Credit. So far, it's been great. Basically, you do a procedure and then they give you-- Let me see here. I took out $10,000 within a year. They'll charge me no interest to pay it off in one year, but as soon as I go over that, and it's not paid, then every month there's pretty close to 26.99% interest rate.

Brigid Bergen: Paul, I hope your mouth is feeling better, but that's a really interesting, it sounds like, different model of a Buy Now Pay Later. Professor, have you looked at some of those models as well?

Nikita Aggarwal: Yes, so this is an example of just the regular or the older version of Buy Now Pay Later. It's not the interest-free short-term credit product that we are mostly talking about. This is the older version, which is longer term, and that it does carry interest, and it should be subject to regular affordability checks and various protections that are generally applied to credit products. Of course, the interest rate is high, but at the same time it is a product that does fall under more traditional credit laws.

Brigid Bergen: We're going to take one more caller, Mary-Beth in Westchester. Mary-Beth has a slightly different take for us to think about as we are thinking about how to buy more stuff. Mary-Beth, welcome to WNYC.

Mary-Beth: Hi, thank you so much. My take is almost off the wall, but I'm cleaning out my mother's house right now, and it's hell. It is absolute hell. It's decades' worth of accumulation. I guess my point is, think twice before buying anything and accumulating stuff. I think things like buy now, except for what the last caller was talking about, I can see the reasoning in that, but it feeds this addiction we seem to have to accumulating stuff. You wouldn't believe the stuff I'm finding in cabinets. It's sick. It's really sick.

If you want to leave your-- If you want your children to love you forever, leave them an empty house. This need to accumulate has a multi-generational cost and not just in money. I'm a big fan of the Buy Nothing Group. Go on Facebook, you find the Buy Nothing Group, and you may find what you're looking for. In doing so you're helping someone else, so that's basically what I had. We need to break this addiction to-

Brigid Bergen: Mary.

Mary-Beth: -accumulating

Brigid Bergen: Mary-Beth, I wish you the best of luck in your project of cleaning out your mother's house. I know how hard that work can be, just the physical act of it, but also, you know, the mental strain it can put going through so much stuff. Another piece of advice for this consumer segment. Just before we go, Professor Aggarwal, what can we expect for the future of Buy Now Pay Laters? How do you think things will change?

Nikita Aggarwal: I think we probably should expect some more regulation. I should say that we've been focusing on what's happening at the federal level, but the states have been doing more in some ways to address. California where I'm currently based has been regulating Buy Now Pay Later for a little while now, under the California Financing Laws. States have moved a bit further, and at the federal level, the CFPB is going to come out with a report, I believe in the fall. I wouldn't be surprised if they recommend tighter regulation, because they're very, very concerned about development, and also concerned about something we haven't talked about, which is the entry of big tech into the space.

Apple, for example, recently launched its own competitor called Apple Pay Later, I believe. That's concerning because in addition to all of these things we've been talking about there's concerns about competition, there's concerns about data, and privacy that are exacerbated when you have these large data-rich companies entering the space. In short, I would expect more regulation, and also just more information and analysis in the short term as people become both interested and more concerned about this growing sector.

Brigid Bergen: Well, we're going to leave it there. Our guest has been Nikita Aggarwal, postdoctoral research fellow at UCLA School of Law. This has been so interesting. Thanks so much for joining us.

Nikita Aggarwal: Thank you so much, Brigid.

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