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Abstract

Buy Now Pay Later (BNPL) companies such as Afterpay, Klarna, Affirm, and Zilch, have grown faster than any other payment method during the pandemic and the BNPL payment method is expected to continue to grow exponentially well into the future. Under BNPL arrangements, consumers buy relatively moderately-priced items online and pay for them in installments, typically without interest. BNPL companies earn revenues from merchant fees. and late fees assessed to consumers, rather than traditional interest. Because consumers do not pay fees or interest if the scheduled installments are paid on time, these companies argue that they do not fall within the classic definition of "credit. " As a result, the companies claim that they fall outside the reach of all federal consumer credit regulation, including the Truth in Lending Act, the Fair Creditor Reporting Act, and the Fair Debt Collection Practices Act, among others.

Leaving aside the question of whether BNPL constitutes credit in the conventional sense, how best to regulate BNPL has become a global question. Like the U.S., other countries are grappling with this question. Regulating credit based exclusively on whether consumers pay what we traditionally think of as 'interest' has become an antiquated approach.

There is little scholarship on BNPL to date. Most of what there is focuses on whether BNPL is good or bad for consumers and on whether consumers overuse the product and make impulse purchases that they later regret. The answer to the first question is surely both. Not paying interest on what is essentially a loan is surely a benefit. Forgetting to pay the installments on time, however, is not so beneficial, particularly when late fees can be more expensive than most other forms of credit. Regarding the second question, consumers, particularly young ones, already shows signs of overusing BNPL by having many of these seemingly- free installment arrangements going at one time. Using BNPL regularly can make it difficult to make ends meet, particularly given how easy it is to buy things with BNPL. This essay explores this BNPL regulatory conundrum, but ultimately asks more questions than it answers.

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