I wrote about the Buy Now, Pay Later (BNPL) approach to selling and purchasing consumer goods at the beginning of this year. See Back to Basics, Continued—What Does “Buy Now, Pay Later” Mean for Consumer Finance? The trend to BNPL during this holiday season has skyrocketed. MarketWatch reported: 

“Orders using BNPL rose by 68% in the week through Nov. 27 compared with the previous week, according to Adobe data released on Monday. Overall revenue from BNPL was up 72% in the same time frame, the data showed. Ahead of the post-Thanksgiving Day shopping bonanza, Deloitte was predicting a big increase in the use of BNPL, with a survey finding 37% of shoppers planning to use it to cover holiday spending.”

As a credit seller, or an assignee of a BNPL contract, what should we look for?

• The number of installments that the consumer has to repay the obligation.
• Whether a finance charge has been assessed.
• Whether Truth-in-Lending Act (TILA) disclosures have been given to the consumer.
• Any indication that the BNPL price exceeds the customary cash price.

All of these factors tell us if the BNPL transaction requires a TILA analysis. 

So, how do we measure the pros and cons of BNPL?

A BNPL transaction may allow the consumer to obtain goods now (as opposed to on lay-a-way) and pay for them over time without interest. BNPL transactions do not add to credit card debt although they certainly add to personal debt. BNPL transactions usually do not negatively impact credit scores, because they are often too short-term to be reported to the credit bureau.

On the con side, BNPL debt usually does not help consumers build good credit (as more traditional installment loans can do). And, credit card purchases can lead to cash-back or rewards points, which will be missed in BNPL transactions.

Please Note: This is the two hundred-thirty-ninth blog in a series of Back to Basics blogs, in which relevant and resourceful information can be easily accessed by clicking Dentons - Consumer Finance Report.