BNPL loans are typically interest-free and paid back in four or fewer installments. They can be seen as the modern-day equivalent to layaway, except that the customer receives the product they’re purchasing upfront rather than after the payments have been made.
They are not always seen by customers as loans, but BNPL are short-term loans that have become increasingly popular with online shoppers. Sometimes called “pay in 4,” these payment plans are now widely available — at luxury brand stores and dental offices, to retail giants like Walmart, and even delivery app leader DoorDash.
Passed by lawmakers and signed by the governor earlier this year, Senate Bill 437, removed from state law a requirement that internet-based consumer lenders, like those offering BNPL loans, maintain a physical office in the state. The new law went into effect Oct. 1.
The change was first pitched in 2021 through legislation sponsored by then-state Sen. Ben Kieckhefer. A representative for Affirm, a publicly traded company that offers BNPL loans, testified to lawmakers that year that it maintained a physical office in Nevada in order to comply with state law but “has never had a single customer come to the location.”
Other buy now, pay later companies appear to have opted simply to not operate in Nevada.
This year, Kieckhefer, now a lobbyist for Affirm and another fintech company, Upstart, resurrected the effort.
Consumer Protections
Peter Aldous, a consumer rights attorney at Legal Aid of Southern Nevada who supported SB437, believes the most substantial part of the new law are provisions requiring the lenders to use Nevada law to govern the loan.
This should end the use of “choice of law” clauses, which says a different state’s laws govern the contract. Typically that chosen state is one like Utah or New Jersey with more lax consumer protections.
“For the most part, we have strong consumer protection laws,” says Aldous of Nevada.
Consumers likely won’t notice the change buried in their BNPL fine print, but it could make a big difference if they found themselves in a dispute.
Critics of BNPL warn that these types of short-term financing generally offer less protections for consumers than credit cards, particularly when it comes to refunds after returning products.
In May 2024, the Consumer Financial Protection Bureau issued an interpretative rule clarifying that BNPL lenders are credit card providers and customers have the right to dispute charges and demand refunds.
The rule followed earlier research by the CFPB found that 13.7% of BNPL loans in 2021 involved a return or dispute.
“Regardless of whether a shopper swipes a credit card or uses Buy Now, Pay Later, they are entitled to important consumer protections under longstanding laws and regulations already on the books,” said then-CFPB Director Rohit Chopra when announcing the rule.
Chopra was fired by President Donald Trump in February of this year. In May, the Trump administration announced it would not enforce the earlier Biden-era rule and is contemplating rescinding it.
Also changing at the national level this year: BNPL loans may now impact your credit score. FICO this year announced it would begin incorporating BNPL data into its credit score model.
Industry Growth
Buy now, pay later loans have been around for several years and gaining traction with consumers.
PayPal’s chief executive has said BNPL is an area of growth for the company and is driven by younger consumers who are wary of credit cards. Another giant of the industry, Klarna, held an initial public offering last month.
The Consumer Protection Finance Bureau in January released a report on BNPL and found that 21% of consumers with a credit record financed at least one purchase in 2022 using one of the six BNPL firms: Affirm, Afterpay, Klarna, PayPal, Sezzle and Zip. They also found that the majority of these consumers are taking out multiple BNPL loans at a time. Approximately a fifth of BNPL users can be classified as “heavy users” who finance more than one purchase per month with BNPL.
According to the CPFB, people with the lowest credit scores make up nearly half of all BNPL loans, though their default rate on BNPL loans is lower than their default rate on their credit cards — 2% compared to 10%.
Many BNPL lenders require customers to set up automatic direct deposit payments from their checking account, making repayment more likely.
Aldous from Legal Aid says a BNPL loan might be the best option for a consumer who would otherwise use a credit card or high interest payday lender. But there are concerns about deceptive marketing that can lead people to taking on too much debt.
While many associate BNPL loans with interest free loans over a few months, these companies also offer loans with longer terms and interest. Sometimes interest and fees can also be tacked onto the interest-fee loan if a customer misses a payment.
“That’s where you can get caught up, getting too used to paying over time, and not lining up your budget,” says Aldous. “People don’t think of it as a credit card. They think, ‘I’m going to have a monthly bill. I can afford that.’”
This story first appeared in the Nevada Current. Read the original here.
