What to know about consumer protection with “Buy now, pay later”

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Have you ever bought a winter coat online, only to find it looks nothing like the pictures you saw on the website when it arrives? Although you must file a complaint with the merchant and possibly the credit card company before getting a refund, returning an item and getting a refund is usually straightforward when you purchase it with a credit card.

But what happens when you buy the sweater using a “buy now, pay later” (BNPL) loan?

Will you have to continue making installment payments on the item even after returning it? Which company do you contact to resolve the issue: the BNPL provider, merchant, or issuer of the credit or debit card you used to fund the BNPL loan?

BNPL, also known as point-of-sale loans, are installment loans that allow consumers to spread the cost of their purchase over time. BNPL options are available almost anywhere you shop, with a number of major retailers like Walmart, Amazon, Target and Sephora using them. A recent Credit Karma Study found that 44% of respondents had used an BNPL product at least once.

Yet, as consumers flock to this new mode of financing, they should be cautious about it.

“BPL loans are still new and government regulations haven’t fully caught up. This means that short-term financing options generally offer fewer consumer protections,” says Leslie Tayne, Founder and Managing Director of Tayne Law. Group.

In fact, the Consumer Financial Protection Bureau recently warned consumers about the tendency to overspend when using BNPL services, the negative impact they could have on credit scores, their late fees and the lack of consumer protection.

Below, Select reviews the consumer protections offered by credit cards, debit cards and some major BNPL providers to help you decide which is best for you.

BNPL credit card, debit card and loan consumer protections

Consumers are offered a number of credit card protections through the Fair Credit Billing Act. There are two types of complaints consumers can file with their credit card issuer: a billing error or a problem with the quality of a good or service. A billing error can be an authorized debit, an incorrect debit, or a mathematical error. If you have a “billing error,” the FCBA requires credit card issuers to investigate if a consumer files a complaint within 60 days of receiving their account statement.

Although the FCBA does not apply to problems with the quality of a good, consumers can still file a complaint with their issuer. Because this type of complaint falls under state law, consumers are more likely to have their problem resolved or refunded if they meet certain conditions. conditions such as having purchased the item in their home country.

The FCBA only applies to “open” credit accounts, such as credit cards or retail cards with revolving accounts, so these rules do not apply to debit cards or installment loans, such as BNPL loans.

It should also be noted that some credit cards, such as The Platinum Card® from American Expressenjoy benefits such as return and purchase protection, which can help you get a refund after a retailer’s return policy expires or if your purchase is lost, stolen or damaged.

However, people who use debit cards also have protections when it comes to charges of fraud through the Electronic Funds Transfer Act. Like credit cards, these protections do not apply to product quality issues. If consumers have issues with the quality of a good or service they purchased with a debit card, they should resolve the issue with the merchant before contacting their debit card issuer, whose some have their own zero liability policies.

BNPL loans, on the other hand, are not subject to the regulations that credit or debit card issuers are subject to. While countries like Britain are rolling out BNPL industry regulations that would allow consumers to escalate their complaints to a national agency, there are no special regulations for BNPL providers in the United States. Some of the major BNPL providers, such as To assert, Klarna and After-payment have their own dispute resolution policies in place.

“If you purchase a faulty item with an BNPL loan, you are subject to the policies of the BNPL merchant and lender, which can make it difficult to navigate the returns process,” says Tayne. “In some cases, you may need to continue paying for an item until the merchant notifies the lender that you have successfully returned it.”

For example, Affirm has a dispute resolution process that works similar to a credit card dispute resolution process: consumers have 60 days to open a dispute with Affirm. Once the consumer and merchant have submitted information to substantiate their claims, Affirm will then decide in favor of either the merchant or the consumer.

Consumers should also check if they are liable to make payments on returned items. Klarna, Affirm and Afterpay all offer consumers the option of delaying payments. Klarna will allow you to suspend payments if you report a problem with your order while Affirm will not require ongoing payments on a purchase if you open a dispute with them within 60 days of the transaction. Afterpay allows customers to extend the initial payment due date by two weeks while the return is processed.

Additionally, 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 any issues. (Although some providers, like Affirm, simply allow you to link your checking account for payments.)

Because Afterpay only allows consumers to pay with a credit or debit card, consumers are subject to the same protections they would have had they used their payment cards directly at the retailer, says Amanda Pires, vice -president of communications at Afterpay.

This means that if you purchase an item using Afterpay and make payments with a debit card, you are subject to the protections offered by your debit card issuer. According to Pires, 90% of Afterpay transactions are funded by debit cards.

For consumers, knowing which companies to contact when returning an item or reporting a faulty item they purchased with an BNPL loan can be confusing.

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

“If a retailer does not accept the return or the BNPL service is uncooperative, consider contacting the credit card company. Credit card companies will often ask if you have attempted to resolve issues with the seller, so do your best and dispute a transaction as a last option,” Tayne says.

At the end of the line

Understanding your consumer protection rights as a credit card, debit card or BNPL user can be complicated and confusing. Before initiating a return on an item you believe to be faulty, you should read the return policies of the merchant, credit or debit card issuer or/and BNPL supplier. Most BNPL issuers and providers have dispute resolution procedures, but your first action should be to try to resolve the issue with the merchant.

If you don’t want to have to contact three different companies to initiate a return on a faulty item, you should consider getting a credit card with a 0% APR introductory period on new purchases. Similar to some BNPL products, these cards offer a way to fund interest-free purchases, plus you’ll enjoy the consumer protections of a credit card and maybe even earn rewards.

Editorial note: Any opinions, analyses, criticisms or recommendations expressed in this article are those of Select’s editorial staff alone and have not been reviewed, endorsed or otherwise endorsed by any third party.