What you should know about “Buy Now, Pay Later” consumer protection


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Have you ever bought a winter coat online only to find it doesn’t look like the pictures you saw on the website when it arrived? While you must file a complaint with the merchant and possibly the credit card company before receiving a refund, returning an item and getting a refund is usually straightforward when you purchase it with a credit card.

But what if you buy the sweater with a “buy now, pay later” (BNPL) loan?

Do you still have to make installment payments for the item after it has been returned? Which company are you reaching out to to solve the problem: the BNPL provider, the merchant, or the credit or debit card issuer that you used to fund the BNPL loan?

BNPL, also known as point-of-sale loans, are installment loans that allow consumers to split the cost of their purchase over time. BNPL options are available almost anywhere you shop, and a number of big-name retailers such as Walmart, Amazon, Target, and Sephora use them. One recently Credit Karma Study found that 44% of respondents have used a BNPL product at least once.

However, with consumers flocking to this new method of financing, they should be careful.

“BNPL loans are still new and government regulations haven’t fully caught up yet. That means the short-term funding options are generally less protective for consumers, ”said Leslie Tayne, founder and CEO of Tayne Law Group.

Indeed it is Consumer protection office recently warned consumers of the tendency to overspend using BNPL services, the negative impact on creditworthiness, their late fees and the lack of consumer protection.

Below, Select takes a look at the consumer protection offered by credit cards, debit cards, and some major BNPL providers to help you decide which is better for you.

Consumer protection of credit cards, debit cards and BNPL loans

Consumers are offered a range of credit card protection measures through the Fair Credit Billing Act. There are two types of complaints that consumers can make with their credit card issuer: a billing error or a problem with the quality of a product or service. A billing error can be an authorized charge, an incorrect charge, or a math error. If you have a “billing error”, the FCBA requires that credit card issuers conduct an investigation if a consumer files a complaint within 60 days of receiving their bank statement.

While the FCBA does not cover issues with the quality of a commodity, consumers can still file a complaint with their issuer. Because this type of complaint falls under state laws, consumers are more likely to resolve their issue or get a refund if they meet certain requirements requirement B. bought the item in their home state.

The FCBA only applies to ‘open’ credit accounts such as credit cards or Retail cards with revolving accounts, so these rules don’t apply to debit cards or installment loans like BNPL loans.

It’s also worth noting that certain credit cards like The American Express Platinum Card®, have perks like Return and Purchase Protection that can help you get a refund after a retailer’s return policy has expired, or if your purchase is lost, stolen, or damaged.

However, people who use debit cards also have Protective measures when it comes to allegations of fraud under the Electronic Fund Transfer Act. Similar to credit cards, these protections do not apply to issues related to the quality of the product. If consumers have problems with the quality of any good or service they purchased with a debit card, they must resolve the issue with the merchant before contacting their debit card issuer, some of which have their own zero liability policies.

BNPL loans, on the other hand, are not subject to the regulations that apply to credit or debit card issuers. While countries like the UK are introducing regulations for the BNPL industry that would allow consumers to escalate complaints to a national authority, the US has no specific regulations for BNPL providers. Some of the big BNPL providers, such as Confirm, Klarna and additional payment have their own dispute resolution guidelines.

“If you buy a faulty item with BNPL credit, you are subject to both the retailer’s and BNPL lender’s guidelines, which can make it difficult to navigate the return process,” says Tayne. “In some cases, you may have to keep paying for an item until the merchant informs the lender that you have successfully returned it.”

For example, Affirm has a dispute settlement process that works similar to a credit card dispute settlement process: Consumers have 60 days to open a dispute with Affirm. After both the consumer and the retailer have submitted information to support their claims, Affirm will then decide in favor of either the retailer or the consumer.

Consumers should also consider making payments for returned items. Klarna, Affirm and Afterpay all offer consumers the option to defer payments. Klarna allows you to pause payments if you report a problem with your order, while Affirm does not require it Onward payments on a purchase if you open a dispute with them within 60 days of the transaction. Afterpay allows customers to postpone the original payment due date by two weeks while the return is being processed.

Also, depending on how you fund your purchase through BNPL, you may need to contact the merchant, BNPL provider, and debit or credit card issuer to resolve issues. (Although some providers, like Affirm, only allow you to link your checking account for payments.)

Since Afterpay only allows consumers to pay by credit or debit card, consumers are subject to the same protections they would have if they had used their payment cards directly at the merchant, says Amanda Pires, vice president of communications at Afterpay.

This means that when you purchase an item with Afterpay and make payments with a debit card, you are under the protection of your debit card issuer. According to Pires, 90% of afterpay transactions are funded with debit cards.

It can be confusing for consumers to figure out which companies to contact when returning an item or reporting a faulty item purchased with a BNPL loan.

Tayne suggests that consumers contact the retailer to understand the return policy, read about the BNPL’s return policy, and as a last resort, contact the card issuer if they need additional assistance.

“If a retailer is not accepting the return or the BNPL service is not cooperating, you should contact the credit card company. Credit card companies will often ask if you’ve tried to clear things up with the seller, so do your best and argue starting a transaction as the last option, “says Tayne.

Bottom line

Understanding your consumer rights as a credit card, debit card, or BNPL user can be complicated and confusing. Before returning an item that you think is faulty, you should read up on the return policy of the merchant, credit or debit card issuer, and / or the BNPL provider. Most issuers and BNPL providers have dispute resolution procedures in place, but your first action should be to resolve the issue with the trader.

If you don’t want to go through the hassle of potentially contacting three different companies to arrange a return of a faulty item, consider getting a credit card with one Introductory period 0% APR for new purchases. Similar to some BNPL products, these cards offer a way to fund purchases without interest, plus you get the consumer protection of a credit card and can even earn rewards.

Note to editors: Opinions, analysis, reviews or recommendations expressed in this article are solely those of the Select editors and have not been reviewed, approved or otherwise endorsed by third parties.


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