‘Buy Now, Pay Later’ Borrowers Get More Safeguards With New Rule

The consumer bureau began studying “buy now, pay later” lenders in 2021 and, in a report in 2022, raised concerns about the loans, including the risk that borrowers could overextend themselves by taking out multiple loans at the same time, and problems that shoppers were having when they tried to return purchases.

Here are some questions and answers about “buy now, pay later” credit:

When does the rule take effect?

The rule, which published on Friday in the Federal Register, the official journal for federal rules and regulations, will take effect in 60 days. The bureau said it would take public comments on the rule until Aug. 1, and would use them to help decide if clarifications or more rules were needed. You can submit comments online.

Can ‘buy now, pay later’ loans help build my credit history?

Despite years of talk, most lenders still don’t report pay-in-four loans to Equifax, Experian and TransUnion, the big credit bureaus that collect payment data used by lenders to decide whether a borrower is credit-worthy. Some lenders and consumer advocates said they worried that if these loans were reported, the pattern of the debt, in which borrowers opened and paid off multiple short-term loans, could mar consumer credit under the formulas the bureaus used to assess risk.

But things may be changing. In February, Apple Pay Later said it would begin reporting pay-in-four loans to Experian; Max Levchin, the chief executive of Affirm, said he expected the company to eventually report to Experian as well. Experian said it included pay-later loans in credit reports requested by consumers and would eventually make them available to lenders, but the company didn’t yet factor them into credit scores — the three-digit numbers that summarize a consumer’s credit file. TransUnion said that it was ready to accept pay-later data and would eventually make it available to lenders, but that it didn’t include the loans in credit reports or factor them into scores. Equifax said that it had been able to accept information on pay-in-four loans for more than two years and encouraged lenders to report such payment data, but that none were currently doing so.

How can I reduce the risk of using ‘buy now, pay later’ financing?

Ms. Chien at Consumer Reports advised against taking out multiple loans at the same time. Borrowers with four or more concurrent loans are twice as likely to miss a payment, she said. She also recommended setting up automatic payments; while you may think paying manually offers more control, it actually increases the chance you’ll miss a payment. Use a debit card or bank account to make payments, not a credit card, she said. If you don’t pay the credit card balance in full, you could end up paying double-digit interest on what was supposed to be an interest-free loan.