We have entered a parallel universe when Tucker Carlson, amplifying the concerns of right-wing activist Charlie Kirk, is calling for more financial regulation, here of a relatively new form of extraction called buy now, pay later loans.
Due to buy now, pay later loans not being regulated because they do not charge interest (more on that soon) and they are offered either by specialists that are private like Klarna, or as a minor activity of big public companies like Amazon and PayPal, information about the product is spotty. Nevertheless, this is a nasty product that is designed to take advantage of subprime borrowers who are already running up against credit limits. To see the likes of Economist run a story titled Buy now, pay later is taking over the world. Good shortly after the Kirk interview raising alarms about the scale and damage done by buy, now pay later loans is….evil.
This product is already too reminiscent of the sort of borrower-destructive practices during the foreclosure crisis that were never remedied and barely acknowledged, from banks persuading naive homebuyers to buy more expensive properties than made sense on their incomes (I had many cab driver tell me unsolicited about that) to servicers using late notification plus late charges and junk fees to compound a single late mortgage payment into a foreclosure.1
An overview courtesy the TCN Network newsletter in July:
Remember when you were 21?
You were probably a lot less financially responsible than you are today…
Looking back, you’re likely glad that spending money you didn’t have was not overly easy. The ability to take out loans for things like a pizza pie, a case of beer, or a pair of concert tickets would have seemed too good to pass up. The purported technicalities of interest rates and late-payment fees could have easily zoomed over your head, appearing not worth considering given your chance to buy what you wanted without opening your wallet up front. It’s a good thing that didn’t exist. It could have made you broke.
Today’s young adults face a different situation. They can fall into debt enslavement over things as simple as groceries or video games, and it doesn’t only happen through credit cards. Those are a disaster in their own right, but at least they exist under a regulated system. This is a totally different ballgame.
Remember these four letters: BNPL. They stand for Buy Now, Pay Later.
Surveys show that roughly 60% of Generation Z makes their month-to-month payments using that modern system. That covers Amazon, Instacart, groceries, clothing, and essentially everything in between. You can finance anything.
Want a milkshake but don’t have the cash? No problem. You can split that $6.99 treat into four installments. The same goes for toothpaste, a new winter hat, and practically anything else you can imagine. Monthly payments for a pair of underwear…
We know it’s easy to blame that story’s borrower for behaving recklessly and putting himself in a bad position. He definitely deserves scorn….At the same time, conservatives should realize that he’s not this tale’s only bad guy. The lender is the chief villain. The people loaning the money are taking advantage of the people borrowing it, enriching themselves as young people obliviously slip into levels of economic disrepair they can’t fix. The lender is the only one who really knows what’s happening. He has more power and more wisdom. That means the moral culpability lies squarely on him.
What is the result of this? Generation Z owes more money than any generation in history…Talk about a recipe for chaos….
If America continues down this path and allows the supposedly all-wonderful unregulated market to keep crushing young people with mountains of debt, you’re not going to like the politics that follow. They will make Zohran Mamdani appear moderate. America’s economic system failing everyday people is the primary reason the 33-year-old socialist is on the cusp of New York’s mayor’s office.
Kirk’s discussion of buy now, pay later starts at 28:51:
Charlie Kirk on how continuing to ignore the debt slavery of Gen Z will lead to revolution.
(0:00) How the Russiagate Hoax Paved the Way for America’s War With Russia
(11:42) Donald Trump’s Fight Against the Intel Agencies
(17:11) What Really Is the Deep State?
(18:42) Why Don’t… pic.twitter.com/lCruWuUMve— Tucker Carlson (@TuckerCarlson) July 21, 2025
Kirk is correct that is it hard to get good information about the buy now, pay later product and its market. One decent source was two CFPB studies, using different samples of buy now, pay later customers. One study was from 2023, the other in 2025, but both surveyed the 2020-2022 period.2
The CFPB focused on what it described as the most common form of buy now, pay later loan, with a 25% down payment and then three equal payments two weeks apart.They are offered at the point of an electronic sale. The buyer “applies,” the lender runs what is called a soft credit check3 This type of buy now, pay later loan does not charge interest but is subject to fees for late or rescheduled payments, usually $2 to $15. Longer term loans may charge interest rates and they can be as high as 36%.
Even though some affluent customers do use buy now pay later loans, the target is subprime borrowers. From the 2023 CFPB report:
Black, Hispanic and female consumers and those with household income between $20,001-50,000 weresignificantly more likely to borrow using BNPL compared to white, non-Hispanic and male consumers, or those with household income below $20,000. In contrast, those with at most a high school degree were less likely than consumers with at least a bachelor’s degree to use BNPL and consumers with a super-prime credit score are less likely than those with a deep subprimescore to borrow using BNPL.
Consistent with the generally low credit scores, buy now, pay later users are more likely to be credit stressed. NerdWallet’s overview:
The Consumer Financial Protection Bureau released a report in January 2025 that shows the majority of BNPL loans are held by borrowers with subprime or deep subprime credit scores (meaning borrowers with bad credit).
BNPL users also tend to hold larger amounts of other unsecured debts, like credit cards, than non-BNPL users. Though the CFPB doesn’t draw direct conclusions from this report, it suggests that BNPL users may be particularly financially vulnerable and should exercise caution around these apps.
The 2023 CFPB report (recall that both reports were looking at data from mainly the 2020 to 2022 period) found that buy now, pay later loans had grown ten-fold between 2019 and 2021. The Economist reported that PayPal, which started buy now pay, later lending in 2020, had growth in outstandings of about 20% a year.
Now some of you may be scratching your heads. How can lending to mainly subprime and deeply subprime borrowers make any sense, particularly with such fast credit approval? You might assume that they depend mainly on getting late fees. We’ll turn to that part of the lender’s economics in due course.
But here is the biggie: Buy now, pay later lenders get paid first. From the 2025 CFPB report:
…most BNPL firms require customers to set up automatic repayments via their debit card, credit card, or checking account.
So in other words, that buy now, pay later loan skims from the borrowr’s available funds or his credit card open balance. That creates the potential for that buy now pay later payment to make the borrower miss other payments. Note they are at high risk of doing so. Again from the CFPB:
BNPL borrowers have lower liquidity and savings on average compared to consumers who did not use BNPL. Approximately 25 percent of BNPL users and non-users alike have zero credit card liquidity, but six percent of BNPL users compared to three percent of non-users with a credit card have negative liquidity, meaning that their debt balances on all credit cards are higher than the sum of their credit card limits, indicating particularly high levels of indebtedness among these consumers.
And they typically rely on high interest credit products:
And of course, a borrower can incur charges on those “source of funds” accounts too. As the CFPB pointed out an earlier report:
Also, be aware that your bank may charge you an overdraft or non-sufficient fund fee if you sign up for automatic repayment through your debit card or bank account and don’t have enough funds to cover the payment
So by dipping their hand in the customer’s funds first, buy now, pay later loans ought to have low default rates. Using the afore-mentioned 2020-2022 data, the CFPB found in 2025 that:
BNPL default rates remain lower than credit cards, likely due to automatic repayment requirements. On average, between 2019-2022, BNPL borrowers defaulted on 2 percent of their BNPL loans.
However, this is not as creditor-rosy as it seems. Again using 2020-2022 data, the CFPB found that net chargeoffs were below 4% (and recall this timeframe included the period when citizens were getting considerable Covid assistance, from extended unemployment to rent moratorium) to the degree that poverty fell:
And due to not being able to squeeze water from a stone, the recoveries on buy now, pay later loans are lower than on credit cards, so the charge-off rate is worse. From a Reuters story on JP Morgan:
The bank estimated its net charge-off rate, or the percentage of credit card debt that will not be repaid, to be between 3.6% and 3.9% for 2026.
That is higher than the 3.6% net charge-off rate the bank is expecting for 2025.
Confirming our thesis that the buy now, pay later product had much lower net charge-offs during the period of substantial Covid economic relief, see the top line in the chart below, which is credit card charge-offs at JP Morgan:
Moreover, keep in mind that the default rate does not give the full picture of late payments. Buy now, pay later customers pay “late” fees not just for missing a payment but also rescheduling one. I have not seen data on reschedulings or a customer missing a payment but then getting current, which would also not amount to a default.
Thus I question the CFPB’s view of the costs of buy now, pay later loans. We’ll return to the most common type, per the CFPB, of 25% down, then three more 25% installments spaced out at two week intervals. Per Nerd Wallet, the charge for a late or rescheduled payment ranges from $2 to $15, with higher charges presumably for bigger loan amounts.
We’ll nevertheless assume the lowest charge, of $2, versus the average loan amount of $135 over six weeks. So assume just one missed payment, made up at the next payment time, or two weeks later. $2 for a two week loan of $45. Annoyingly, my corporate finance texts are in storage and multiple web searches are not coming up with the formula for calculating the effective interest rate for a period of less than a year based on the payment, principal, and term. Nevertheless, a $2 fee is 4.4% of $45,4 so this is clearly a super rich interest rate on an annualized basis.
Contrast the forgoing with the Economist’s nauseating promotion of buy now, pay later loans, starting with the title: Buy now, pay later is taking over the world. Good.
The last thing the world needs is more private debt, let alone unproductive personal debt that targets the poor and already-overextended. As none other than the IMF determined in 2015, more financial “deepening,” which is economese for more financialization, is bad for growth. And the optimum level is way lower than where the US and Anglosphere are. The IMF put Poland as of then at the sweet spot. It did say more financialization might be possible without a growth cost if there were good regulations. Buy now, pay later represents the antithesis of that.
Yet the Economist is all on board with the more efficient creation of debt slaves:
Burritos ordered online, tickets to Coachella and Botox injections. These are not just must-haves for some American consumers—they can now all be bought using buy-now, pay-later financing.
Such purchases are often the subject of derision. Paying for lunch in instalments is, to some, consumerism at its most ludicrous. Others see something darker: lending that skirts the edge of mainstream finance, preying on precarious borrowers.Neither mockery nor anxiety have dented the industry’s growth, however. Worldpay, a payments firm, suggests that BNPL accounted for $342bn in spending around the world last year, up from just over $2bn a decade earlier. Older financial firms, such as JPMorgan Chase and PayPal, have entered the market, just as BNPL companies are taking on tasks that were previously left to banks…
Despite the industry’s recent success, there is reason to think it is still in the foothills. Fewer than 2% of Bank of America customers born before 1965 have an outstanding BNPL payment, compared with 10% of the bank’s Millennial and Generation Z clients. As younger cohorts come to account for more consumer spending, the market should grow. In countries where BNPL has been around longer, it contributes to more sales: over one in five of those made online in Sweden, against less than one in sixteen in America. Local and regional firms are popping up to offer the service: Addi in Colombia, Atome in Singapore, Tamara in Saudi Arabia.
As the industry grows, the borders between BNPL and mainstream finance are blurring. Klarna, an early mover, has been a bank in Europe since 2017. Sebastian Siemiatkowski, the company’s co-founder and boss, says he wants it to become a digital financial assistant enabled by artificial intelligence. Affirm launched a debit card two years ago, and has seen uptake soar of late: the firm now reports almost 2m cardholders. Customers can use the cards in shops, either to pay in full or in instalments, bringing a financing method synonymous with e-commerce into the real world. In the past two years, both the BNPL giants have been integrated into Apple’s and Google’s digital wallets.
Only well into the article does the Economist ‘fess up that most buy now, pay later users are already under financial stress. Note it never uses the word “subprime,” let alone “deep subprime”. Instead the positioning is more akin to a new product having growing pains and perhaps at most having a shakeout down the road:
Some difficult questions linger over the industry, which has ballooned over the past decade—a period without a prolonged downturn. Chief among them is whether it is facilitating risky borrowing by consumers living beyond their means.
Customers undoubtedly have lower incomes than those using credit cards. And there have been worrying snippets of news. Klarna’s consumer-credit losses rose by 17% year-on-year in the first quarter of this year. Research by the Federal Reserve suggests that the proportion of BNPL users who have made a late payment has climbed from 15% in 2021 to 24% in 2024.
And in a parallel to the old subprime mortgage market, lenders are being pressed by securitizers and credit funds to gin up more loans. As we explained long form in ECONNED, the “toxic phase” of subprime mortgage origination was the direct result of overheated investor demand. Again from the Economist:
For BNPL providers, expanding their lending operations as fast as possible means keeping a light balance-sheet. The idea of burrito-securitised bonds may be the subject of mockery, but the relatively opaque market for BNPL portfolios is booming. Asset managers and private investment firms that are snapping up the debt believe they have found an appetising asset class in which underlying assets mature quickly. In October, Elliott Advisors, a British affiliate of a mammoth hedge fund, purchased Klarna’s $39bn British loan portfolio. In 2023 KKR, a private-markets giant, agreed to buy as much as $44bn in BNPL debt from PayPal. Affirm has issued around $12bn in asset-backed securities. One BNPL insider calls the market “a feeding frenzy”, where there is not enough debt to satisfy demand.
The Economist tried to legitimate its unseemly enthusisam by arguing that the real opportunity is the small business market. But most small businesses are financially fragile, and small business loans, ex ones against real estate, are guaranteed personally by the owner. So is this just moving up to a bigger ticket weak borrower?
And to return to Tucker, when the right wing thinks the banksters have gone too far, they probably have. As we quoted him earlier:
The lender is the chief villain. The people loaning the money are taking advantage of the people borrowing it, enriching themselves as young people obliviously slip into levels of economic disrepair they can’t fix.
But you won’t learn that from touts like the Economist until the carnage becomes visible, and even then, expect it to be whitewashed.
____
1 This is no exaggeration. For instance, we had a top mortgage securitization executive, also a lawyer, make two months of mortgage payments at once because he was going to be overseas for a bit. His bank credited both payments in one month and still treated him as having missed his payment for the next month. This was in 2003 and with far too much effort, he got it straightened out. But he said, “If this had happened in 2007 or later, the servicer would not have corrected the payment history and I would very likely have been foreclosed upon.”
2 Recall that this was a time when Covid subsidies like extended unemployment and rent relief produced a big but short-lived fall in poverty.
3 From what I can tell, the credit bureau delivers the same information as if the buyer was making a credit application, say for a a loan or a new credit card, but puts it in the same category as when credit card companies are screening credit files to make credit offers. By contrast, too many credit applications results in a lowered credit score
4 If you multiply 4.4% by 26, you wold be wrong and would get a failing grade in a finance or investments course.
74 comments
Comments are closed.
The family and I are in a big city for a sports tournament for one of the kids.
Thank you for this article. I had absolutely zero idea what this was all about. I saw the ads in some of the restaurants. Certainly not everywhere, but enough to get your attention.
For, what we noticed in the fast casual restaurants like Chipotle were what appeared to be ads for payment schedules for burritos. The ads appeared to me very similar to what I remember as a child at JC Penney with my grandma in the layaway line. The payment terms were just ludicrous, with payments of a few dollars a week. I could not fathom companies spending the time to finance burritos at 1 dollar payments a week. I thought this some kind of joke until I read this article. Furthermore, as a consumer, if you are having to finance burritos, perhaps again you should do what grandma did in the Depression and taught me to do that got me through early adult life…..things like beans and cornbread at home.
I could scarcely believe it. We are now financing burritos in our big cities. Surely that must be a sign of incoming doom. There is absolutely nothing like this where we live, but then again there are hardly any restaurants where we live, much less 10 fast food joints on every corner.
>Furthermore, as a consumer, if you are having to finance burritos, perhaps again you should do what grandma did in the Depression and taught me to do that got me through early adult life…..things like beans and cornbread at home.
My ridiculously oversimplified thought. Well, too bad home economics classes have been eliminated in so many schools. Who knows how to cook anymore Much like shop classes.
We are now financing burritos in our big cities.
Sure. America isn’t a country, it’s a business — a plantation, specifically.
This is life on the plantation.
Sorry — your post lacks empathy and understanding.
A big part of poverty in the West today is decision fatigue. It is easier to go to Chipotle where you do not need to open the can of beans, shop for the meat, peepare the rice, sautee the vegetables, etc and then do all the dishes. There isn’t just an (overstated) difference in cost, but also in time and mental fatigue.
A lot of things are much harder now. You mention the halcyon days of yore when people took shop class. Well let’s talk about those days. Did people need to scan and bag their own groceries? Did they need to spend two hours on hold everytime they wanted to speak to customer service? Did they need to answer 150 questions on an iPad Everytime they check into a medical office?
A lot of people know how to cook, but there may be too much decision fatigue for them to do it.
Thanks for this excellent reminder.
As I have finally aged out of active work, I do lots of shopping and cooking. Even without time pressures, I often marvel (uneasily) at how quickly minutes turn into hours while I’m deciding what to buy, where, and when. Not to mention the time spent fixing recurrent glitches in whatever system I am dealing with.
How are people who work fulltime and are caring for children expected to manage all this “successfully”?
“How are people who work fulltime and are caring for children expected to manage all this “successfully”?”
I understand that there is an app for that.
Yes. I’ve often explained to people that scratch cooking for a household is like a 20-hour a week job nobody applied for. It’s simply time consuming, and a lot of planning and marketing and prep and cleanup. All while grocery stores are actively scheming to cheat more money out of us using every trick in the book.
That said, as we go into this recession featuring $15 burritos, those of us not in the anointed 20% are going to have to clear time to do at least rudimentary cooking, and to teach younger people how. And some of us may need to cut back on screen time to do it.
Afro,
I’m not disagreeing at all with what you say l, I understand how what I wrote is interpreted that way and as I said I was oversimplifying. Sarcasm without clarity provided by me
I hear about this stuff almost everyday, my better half works with those in housing crisis. Good luck with that in central Vermont and the Upper Valley when so many are living on disability of $900. Or so a month and the average rent for a sh***ole much more than that. By the way, thanks DOGE for all the voucher cuts, and cuts to budgets for the personnel to help them find housing. Yup, my better half took that hit too.
It’s not possible to cook a decent meal now matter how skilled one is when your home for yourself and two kids is a motel room that only allows a tiny microwave and if that’s dorm fridge, well they’re making them smaller these days. One is forced to buy prepackaged, prepared crap foods.
And yes, after donating and helping move some personal furniture into a recently placed client, her kitchen for her two kids is barely a step up.
So yes, I get it and how easy it is to just order it up out of fatigue and lack of accommodation. And she’s fairly stable, never mind the people that finding an apartment is the first problem solved of a dozen more behind it.
This is what this country has become, extract every possible cent from you, somehow, no matter how bad off you may be financially. A hand in your pocket, or on your phone, in an app, providing you ” convenience after a busy day, following you right to the grave.
I have no time and do just about NO cooking, but really simple meals take no time. Opening a can of beans as having a time cost? Seriously? I do that all the time, and brew my own coffee, and mainly eat simple salads, tofu, beans, steamed veggies or raw veg with dressing, and some fish or chicken. One store bought prepared food that is a good buy is (or at least was, bird flu may have changed that) is rotisserie chicken. How about canned tuna? 1x a week is OK in terms of mercury load. I eat canned salmon too.
The issue, to be blunt, is the perceived need for really tasty food. My grandfather, who spent his later years below the poverty line and was not much of a cook ate very simply. It was not terrible but it was way short of being as savory as Chipote. One of my mother’s friends worked and her kids ate a lot of pasta with (I kid you not) not only pasta sauce but sometimes soup on top.
You’re also home most of the day, aren’t you?
When I can WFH, that makes home meals way easier to do.
But you do not get it. I do not spend any time in the kitchen. I don’t cook.
When I was working at an employer and needed lunch, they usually had a fridge and I would bring in cottage cheese and a tomato, or cottage cheese and a half melon. The secretaries regularly ate a can of tuna.
You are assuming I cook or do meaningful meal prep. I don’t.
I eat canned tuna about once a week as well. Whether the mercury load is too low or too high is information that we do not actually have access to due to the corruption of medical research. Note also that cans of tuna in olive oil used to cost $1.00, they now start at $2.50.
Yes, people do care about tasty foods. It’s one of the few remaining sources of pleasure for most. People are watching fewer movies, have fewer friends, are having less sex, have fewer children and less contact with siblings parents cousins, etc, apparently they’re even drinking less, so yes, people want tasty food.
I usually make my own coffee as well, and that too is work. When I moved last year, I noticed that the coffee that I made tasted really bad, and I didn’t know why for a while. I was also beginning to hate tea. I eventually realized it’s because I’m now in a jurisdiction with awful tap water. Both the water in my office and in my home tasted awful. I have to regularly spend money on a PUR filtration system (the level 3) and I can drink my own coffee again. But that adds mental work and cost.
Fully agree. I cook a big pot of stew in the crockpot once a week Sundays, buying seconds from the local farm market for the veggies the day before. Divide the stew into seven Pyrex containers, freeze, and eat one a night. I add simple sides, bread, pasta or baked potato, and simple salads for variety. Wash the dishes, along with my hands, and dinner is done for the day.
I do not mind eating the same food every night for a week. Real food, inexpensive, to my taste and takes little time.
Thank you. I have cooked like this for decades now. You can take a whole chicken, throw it in a pot, boil it for 3-4 hours, and then take another half hour at the end to pick the chicken and add some rice and a couple extras. That’s dinner for a week with about one hour or less of active cooking time up front. It’s also delicious – you will find chicken augolemono soup on just about every Greek restaurant menu.
I have to say, I do get a little tired of the ‘too stressed and not enough time to do anything’ arguments. I have a full time job, a kid, and make around the median salary. I still have time to garden, and cook, read, get in some exercise, and comment frequently at NC. If something costs more than I have, I don’t buy it. If a job commute is going to take up too much of my time, I find a job closer to my house. I don’t in any way feel exceptional – pretty sure this used to be the norm. I do wonder if the people who take out these types of loans maybe don’t manage their time well or their money.
Rather than a payday or BNPL loan, I would suggest listening to someone like Dave Ramsey. I’m only familiar with him because my better half wouldn’t take my common sense financial advice, but when she stumbled on Ramsey, who was essentially saying the same thing – save your pennies, don’t spend more than you have, don’t go into debt except for a home – then it took!
Ramsey isn’t for everyone – he’s very Xtian, and as he’s gotten wealthier himself, I’ve detected more of an “I’ve got mine so screw you” attitude. But his basic advice is pretty sound and not unrealistic to follow. Pretty much the same stuff as you and others in this thread have already said.
Half hour recipe for a decent dish:
– peel&boil potatoes (25 min);
– pork tenderloin two whole pieces cut in half fit nicely on a big pan (four 20 cm long pieces). You need a steel pan with thick bottom and tight fitting cover that keeps the warmth. Get the pan very hot. Melt some lard on it. Watch not to burn it (this can be tricky). Get the meat on the pan, it has to sizzle very vigorously, three minutes each side till it gets brown, Cover the pan, turn off the gas, wait 20 minutes for it to cook.
– some other veg or salad of choice (cooked sauerkraut? Beetroot?)
– you may consider some sauce if you have some stock left over from yesterday’s soup. Or just douse the potatos & veg with nice olive oil. Or flaxseed oil.
I used to make it very often for my people right after work.
Soup on rice (any kind) was a favorite in my family. Ordinary fruit (apples, bananas, oranges) was always on hand if someone needed a quick bite to eat.
This buy now pay later stuff contributed to the Great Depression here in the USA. But back in the 1920’s it was called “installment buying”. Too bad they don’t teach history in school anymore.
Another problem is that when you’re living alone, it’s hard to cook for yourself without ending up with a ton of extra food that goes bad if you don’t figure out a good use for it within a few days. If the food just goes bad, you haven’t really saved any money vs. going out to eat.
Aren’t people already financing burritos when they pay for it on their credit card and then struggle to meet the minimum payment for the next 17 years?
That said I agree with you that this means impending doom. Rich people want “investments” that guarantee “passive income” aka rent extraction. The rest can’t afford to meet basic needs, with prices rising far faster than wages.
We’ve been on this road since Obama failed to convict anybody after 2008, and I’m surprised we lasted this long.
I’m surprised we lasted this long.
“There’s a great deal of ruin in a nation,” like Adam Smith said.
I think we are all used to financing anything on credit cards.
This is an entire new system that just makes no sense. Call it reverse layaway.
When my grandma did layaway at JC Penney, she would put something on layaway like an Easter dress or appliance. There were terms where she would come in the store and pay x amount every other week for 3 months or whatever. These were substantial items. There was a layaway fee like 2 dollars and if she missed a payment or decided she did not want it, all would be refunded except that fee. No interest.
This system is for acute food items! Burritos, hamburgers, etc. I am certain that things like 40 dollar smoothies we are seeing everywhere are eligible. Smoothies complete with organic cow colostrum. I am sure PT Barnum is rolling in the grave. At least my grandma was buying stoves and dresses. I kept seeing little signs with BNPL everywhere in restaurants thinking it was Rip Van Winkle time for me again and there was a new bank I did not know or something. Things take a long time if ever to hit the hinterlands.
So the customer gets the food item today and then pays it back in one dollar weekly amounts over weeks. Again a reverse layaway. And it appears the creditor has direct access to the checking account.
I find this reverse layaway plan really a sign of big trouble ahead.
Ahh layaways, takes me back to the days of Christmas Clubs at your local bank. Put 5/10 dollars a week when depositing your paycheck and your Christmas gift budget is good to go.
Ahhh…the old Christmas club thing. I did my own. I would take whatever change I had in my pocket each day when I got home and put it in a gallon pickle jar. I did this from November to November and then cash it in at the bank. This was my Christmas money. It would be $800-$1000 bucks a year or so. Worked great.
Until my back decided it no longer took bulk change. The end.
I still do the change thing. I pay for almost everything in cash and then save all the coins I get as change. It’s a fun little ritual to roll it all up and bring it to the bank periodically. I generally save a few hundred dollars a year this way and have been putting it into the college fund. Given the tuition these days, I think I’ve paid for my kid’s first 15 minutes or so of college.
When the kids were young I would get them to help roll the coins and keep out the pre- 64 nickels while they were at it.
Just easier now to take them to the bank and they count them for free for their depositors.
It must be lovely there; Here, mostly rural, we have Russ Ave which has every fast food place known to mankind. There are thankfully real food places downtown on Main St, but almost all of them are indoor only and with the COVID, I haven’t eaten in doors since a couple times briefly in 2021.
Au contraire, mon ami. In New York City, sandwiches go for $30 a pop. That’s
$900 a month, if you ate one every day. Everybody’s got to eat, don’t they?
Reminiscent of the company town…
https://www.youtube.com/watch?v=MTCen9-RELM
Where’s Bill Black when you need him and his insights?
It’s still not clear to me how BNPL is profitable if they don’t charge interest. Do they charge fees to merchants like credit card companies do?
Otherwise you’re playing the game of hoping borrowers miss a payment, but only temporarily.
Edit: I see they do charge merchants fees that are typically higher than a regular credit card. So they’re picking up nickels in front of a steamroller, got it.
It’s also a form of factoring. I was remiss in not pointing that out. They effectively buy the payment obligation from the merchant at a discount. From the Chamber of Commerce:
And you missed that the effective interest via the “fees” is ginormous, and that there are no stats on how many users are late or defer payments as opposed to default.
I get that the fees are high, but then you’ve transitioned from a model where your profit is based on people paying you back on time (with interest), to one that is dependent on people not paying you back on time, but still paying you back eventually. Much smaller margin for error with the latter.
Did you miss the key point with buy now, pay later: that they set themselves up to be paid first, before all other lenders?
I’m trying to see where this is headed?
100% of debts that cannot be paid will not be paid?
Debtor’s Private Prisons?
Bankruptcy for creditors holding the bag, businesses that hold the bag, and borrowers, all?
Homelessness and crime through the roof? Mor Nat Guard, Ice, and Internment Camps?
Bleak! Wonder if ‘they’ will be chatting it up in Jackson WY
Another “problem” with the online shopping emporia is their obscurity and untrustworthiness. Being established on easily manipulated platforms, the possibility for fraud and deception is well nigh irresistible to the vendors, or, more importantly, the platforms that host them. Amazon already has a bad reputation for exploiting their own vendors. This for a class that should know much more about retail finances than the average customer.
An example of the consumer exploitation I mentioned above. When I search for an item on e-bay for example, I often get a pop-up in the top right hand corner of the monitor screen touting some “cheaper” price for the object being searched for. This pop-up is serving a useful function for the shopper, right? Wrong. I have generally found two financially exploitative schemes involved with these pop-ups.
First, when I am searching for offers of multiples of a product, (get four for the price of three for example,) the pop-up will give a “cheaper” price, for a single item of the desired object. Often, this “light fraud” will alternatively consist of a “cheaper” price for an item of less weight than the searched for item, or less volume or lower number of items per package.
Second, I have found that, as the price of the initial item searched for changes, the price of the ‘substitute’ ‘cheaper’ item offered also changes. For example, if Widget A(1) is priced at X dollars per unit, the suggested better price is a bit below that initial price. So far, so good. However, if Widget A(2) is priced at X+1 dollars, the suggested ‘better price’ for the second example of Acme Widgets is yet another Widget, priced at Lower Price +1 dollars. Alternative widget A(1) and alternative widget A(2) are separate items posted by different vendors. Thus, the Alternative Algorithm is not searching for the absolute lowest price, but for a price merely lower than the original price quoted. A rent extraction maximization scam, pure and simple.
Is it any wonder that this latest Buy Now Pay Later scheme is dodgy (to be ‘polite’ about it.) The entire online retail sector seems to be based upon fraud and exploitation.
To misquote W C Fields: Never give a customer an even break.
This is not even considering how much more of this sort of exploitation will be possible under a Central Bank Digital Currency regime.
Stay safe.
>Debtor’s Private Prisons?
Well, it’s not uncommon to find a road in small town VT. named “Poor Farm Road”.
Will we be going back in time to deal with the those less fortunate, pushed there by society today?
LOL. I once worked with a lady who grew up during the Great Depression.
On a farm in the South. She said she never knew there was a depression.
“We had food, a place to live, and lots of love. What more did we need?”
She said. Of course the situation is different now. The same lady also had
a grandson who was shot in the head while unloading groceries in a supermarket parking lot. People got to eat, don’t they? I just thank God
we’ve got ‘Truth, Justice, and the American Way.’ Of course we also have
a leadership saying, “Nice little country you’ve got here…. Be a shame if
somethin’ was to happen to it.” I’m sure they mean the dreaded spector
of Socialism. Perish the thought! Then again…. people got to eat, don’t they?
The biggest problem with Amazon is that they take a big cut of the sale price that vendors charge, so the vendors raise their price accordingly to cover the fees, but Amazon also requires vendors agree to not sell their products for less on their own or other sites, so Amazon is effectively raising the price whether the consumer purchases the goods from Amazon or someone else, the result being that everyone buying the product is forced to pay what amounts to an ‘Amazon tax.’
Excellent framing there with the ‘Amazon tax’. People who complain about excessive taxes paid to the government often don’t realize they are paying even higher ‘taxes’ to private businesses in the form of fees, or raised prices due to the fees businesses charge each other. Those looking for a free lunch aren’t going to find it, and if I have to pay my inevitable taxes before my inevitable death, I’d prefer paying them to the government where at least in theory I have some say about how much I’m getting charged.
Excellent Article that goes through the Amazon tax on all it’s sellers.
That’s true, but it does work in our favor in Hawaii. A lot of Ebay sellers won’t ship to AK/PR/HI, even stuff you can just use USPS. Online retailers often advertise “free shipping” but too often you can’t find out what “free” means in Hawaii until you go through checkout. Then I had one retailer, sold a product with the typical $15-$30 shipping fee that could be mailed for $5, sent it to an LCL freight forwarder on the west coast; eventually it got put on a ship and I got it a month and a half later.
So yes, I willingly pay the “Amazon tax”.
“the online shopping emporia” are the living embodiment of Akerloff and Shiller’s Phishing for Phools: The Economics of Manipulation and Deception
https://www.goodreads.com/book/show/25560530-phishing-for-phools
The example you gave ($2 fee on $45 loaned over 2 weeks) is approximately 113% annualized. ( natural_log(47 / 45) * 52 / 2 = 1.13 )
Reading this I found myself thinking, how do I get in on this as a creditor? Then with horror I recognized the implications.
Any reason why C = P*e^(rt) or the continuous interest calculation isn’t applicable for this? If I do my work with this, I get:
1.0444 = e^(r * 0.0384) — Divide $47 by $45 or use the previous term interest rate. Replace t with 2 weeks over 1 year (14/365).
0.0435 = r * 0.0384 — Take the natural logarithm on both sides. Then solve for R
r = 1.1323 — The effective annual interest rate, through compound interest, is 113.23%
Allowed to compound for 1 year, the $45 dollars would become $139.63
Presumably calculating the installment payments based on continuous interest requires solving for the geometric series based on number of payments, and the effective interest rate for the payment interval. Basically, solve for variable ‘a’ such that the finite geometric series of that value with ‘r’ as the interest rate and Ssubn as the total principle and interest payed will give you the approximate installation payment.
I’ll leave that as an exercise for someone else, or will issue a penance if I am wildly off the mark here.
Of course, Kramshaw beats me to punch by two minutes, literally while I was typing my response!
Thanks, you proved each others math it looks like to me :)
The standard Corporate finance way is to raise the interest multiplier to whatever power takes it to 1 year and then subtract 1 for the principal. This assumes that if you charge X Rate of interest for a period N, you will continue to charge the same rate on a compounded basis.
So, (1+(2/45))^(365/14)−1 gives us 2.107 or 210.7% annual percentage rate.
If the late fees is charged on a flat basis — meaning that it’s $2 every two weeks regardless of how much balance is owed (including the earlier unpaid later fees) — then it shall be a straightforward (26×2)/45-1= 15.55%. But Yves says this should not be done.
If I take the ratio of $139.63 and $45, I get 3.103, which after subtracting 1, comes to 2.103. This is close, but not quite as juicy a number as 2.107 (Though we can get away with 2.103, because we’re compounding an infinite number of times, as opposed to 26.07 times)
I’m surprised corporate finance would use finite compounding instead of continuous compounding though.
I never borrow money precisely because of the “debt slave” aspect of it. I do however use my debit card–a lot–and have experienced what I consider funny business involving this. Apparently if you don’t opt out the banks will convert an insufficient funds attempt to use debit into a loan that you are expected to cover within a specific period of time. When I got an overdraft because of this the bank officer said it was so I wouldn’t be “embarrassed” by having the card rejected.
Of course the existence of bank cards–debit or credit–is precisely to lubricate the purchase decision which is why merchants encourage their use and are willing to pay the fees.
At any rate it’s a little hard to be shocked by this latest wrinkle since credit has become the way the current American economy works and you are even judged on your worthiness as a human being according to your “credit score.” One might even go so far to suggest that lending is the very essence of the class war in ways that Hudson talks about. The entrapped victims become “deadbeats” whereas the upper class like businessman Donald Trump can stiff their creditors and get away with it.
I won’t have a debit card that can draw directly from my bank. I have a stored value cash-card that I can top up instantly from my checking account, then use that as a debit card.
The ONLY card attached to my bank is an ATM card without any purchase ability.
That’s actually what we’re going to do with our two ATM cards.
The ATM double use-case of requiring a PIN for debit or nothing when used as a credit card is awful.
We would never use either ATM card as a credit card, and only use debit for one transaction – groceries. Weaning ourselves off that now that we have credit cards which pay us points for using them.
We (try to) keep a small checking balance and top it off as required from savings, but I freally want the entire ATM card disconnected from debit or credit use.
I truly hate the debt slave aspect of it all, but I have to disagree with you here, but only with caveats*.
I hate owing, but I use credit cards as much as reasonable, mostly because using the debit card is a trap of its own. With a credit card, I generally find the one that gives the most benefits for use, like points, or cash back, or whatever, but with no annual fee, and use it for as much as I can. Then, I pay the entire thing off at the end of the month, avoiding interest fees. This gives me all the benefits without the biggest downside. Additionally, like Yves said, credit cards are pretty heavily regulated, which is a bonus.
I previously used your debit card method quite frequently some years back until, through no fault of my own, my card was skimmed and the account was hit for some pretty big transactions. I immediately called the bank and reported it, and eventually, I got my money back, along with my new card. However, that whole process took a couple of weeks, along with mailing a signed form and some additional headaches. That whole time, my account was totally frozen, and no transactions could occur. The bank did what it needed to do as far as the law was concerned, but no more. In the meantime, I was put out. And from what I’ve read, it could have been way worse. Way better consumer protections on credit cards.
Instead, I put it on the lender instead. They owe me money? That’s my problem. I owe them money? Their problem. My credit card gets stolen and used? I couldn’t care less – it’s on them to fix that shit. And get me a new card, too, while you’re at it.
My admittedly petty approach was validated by hearing some random banker bitch and moan about borrowers who paid in full every month, especially if the card was generous with benefits: they called those users “free-loaders.” Fine by me.
*Obviously, it requires an obsessive level of dedication to budgeting and planning and managing finances, which is a lot of manual work. It also requires you to have the facility of getting the credit, and later paying the bill, which isn’t always reasonable. Luck is useful here. I don’t judge anyone who can’t or won’t do this.
The big advantage of credit cards is the chargeback rights. You can dispute charges (like stuff did not arrive, was not what you ordered, etc) and you have WAY more leverage with the merchant.
This. There is a reason why merchants and banks are trying to shift everybody to debit cards.
Merchants get absolutely screwed by fraudulent credit card chargebacks. I deal with these all the time, and the cardholder doesn’t just dispute a charge and then wait for a decision to be made to see if they’ll get their money back – they file a complaint and generally get their money back right away, whether the complaint is legit or not. Then if the chargeback was fraudulent, the merchant has to fight the card company to recover the funds and the card companies are much more inclined to take the side of the cardholder. AMEX recently instituted some new procedures that make it even harder for merchants to be made whole when fraud occurs. In the past, I used to have to jump through a lot of hoops to recover funds from fraudulent chargebacks, but I always got it back. Recently though, for the first time I was unable to get the funds back even after showing AMEX it was fraud – turns out we hadn’t properly adhered to all the exact required details on some bureaucratic form and we were told ‘tough luck’.
I could go on, but suffice it to say I have seen ample evidence over many years that credit card companies knowingly profit from fraudulent transactions and merchants have little recourse. Scammers love the chargeback rights of credit cards.
I’m sorry, but I have had merchants refuse to reverse charges for items their own tracking systems showed as not arrived, or even in one case, they clearly sent to the wrong address and acknowledged that, yet refused to give a refund. The credit card chargeback was essential. So my experience is a lot of merchants behave badly.
Agree. I’m fortunate that I can charge everything and pay the statement balance on time every month. My bank doesn’t like it, but they do issue me an ATM card instead of a debit card.
These days where a Big Mac here runs around $7 I can see the appeal of BNPL. I notice in TV K-Dramas BNPL seems to be an option so I guess it isn’t only here.
I do hardly any online commerce and if I need some electronic doodad from Amazon I get my brother with his free shipping to order it for me.
And for store retail you supposedly always had the right to take things back. The only time I had a false charge on my debit card over many years was when the bank–unasked–sent me a new one and somebody at the P.O. apparently must have filched the number. The bank of course canceled the one small charge by some website and refunded.
I should say though that I only use the debit at stores where I frequently shop and trust. When I go on the road I use cash or my credit card at gas stations.
There were also some fairly large breaches of debit card info at a couple major retailers (Aldi and Tj Maxx come to mind). Credit card info gets stolen, that’s the issuers problem. There are consumer protection laws to help you. Debit card info can be tied to your bank account and now it’s your problem.
I do likewise, for all the reasons you mention, but the wisdom of doing so hinges on our ability to pay off our credit cards in full at the end of the billing cycle. I’m too lazy to do the research, but I imagine that puts us in the minority of credit cards users.
Even assuming a high level of financial illiteracy and poor impulse control among people using BNPL, I also think it’s fair to assume that many of the people getting trapped would do the same, if they could, but they’re getting squeezed from every direction – stagnant wages, decline of legit employment, housing, child care and medical costs, etc. – and as Afro rightfully points out, tightly squeezed for time and attention.
Sounds like a parasitic rentier business model perfectly in keeping with the times, and destined to result in ashes, tears and rage.
You are describing why I use debit a lot despite the risks. I’d rather take my chances with the cyber criminals than the bank. Here’s suggesting the risk from the first is greatly overplayed and from the second, per the above article, underplayed.
I do have a bank where I still get a monthly statement and check it closely.
Most cyber criiminals have bigger fish to fry than petty debit fraud.
I guess they figure that it is better to get a young person into debt than an older one as a younger one will be paying that debt off for decades more. Get ’em young. There have been schemes to profit off poorer people going back forever and US corporations really got into the act when they realized the total wealth that poorer people had in the aggregate back about the 80s. An example of how poorer people are taken advantage of. In one of Michael Caine’s books he was talking about when he was growing up in eastern London and how he got to resent the radio in his home. His father paid a nominal weekly rent on that radio but it never went to pay it off and Caine realized that for what his father had paid in total, that he could have brought several such radios. So after his father died one of his first acts was to return the radio to the store and went out and bought his mother a new one. The point of this story is to show that there are always schemes to profit off vulnerable people and Buy Now Pay Later is just the latest iteration. Just a particularly scungy one.
‘Buying it on the never-never’ is what they used to call it in the UK up till, IIRC, the 1970s and ’80s.
That was called HP or Hire Purchase.
I remember an English teacher I had in the late 70s, when HP was new, enthusiastically recommending it to all of us 12 year olds.
The main advantage as far as he was concerned was that, apparently, if you died the HP debts were cancelled and your family got to keep all that stuff for nothing.
I thought that was a pretty tangential advantage but then that English teacher was actually Scottish. :-)
Brother can you spare a Dime, for which i’ll eventually owe you a buck?
Well, if that’s a pre-1965 “junk silver” dime, it’ll set you back more than a buck. (As of the latest price, $2.72 USD. Stand and deliver!)
I’d gladly pay you Tuesday for a hamburger today.
https://www.youtube.com/watch?v=68eue5cpbsE
But by then the cost won’t be “Wimpy”.
Thanks for this article.
Too bad we didn’t enter this parallel universe two decades ago where more conservative pundits recognized just what’s being done to average Americans because it was pretty obvious back then too, but it’s good to see even if it’s too late.
I see these BNPL offers everywhere. I cannot imagine what the implications are if we somehow saddle younger generations of our country with personal debt of this type. It’s amazing that we have Congresscritters and Seniltors that publicly moan about “what we’re doing to our children” as we add to public debt, but they seem to do nothing about this very common usury plaguing our country. I submit that it’s much better for the entity that prints money to go into debt than driving tens of millions of citizens into debt slavery.
BNPL can be a useful tool for the financially literate and peeps who’re retired and have reliable but relatively small cashflow. I can for example buy a good pair of shoes with my semi-retired limited monthly income that I would otherwise not be able to afford straight up, which could force me into buying a low quality one that would last a fraction of the time.
That peeps misuse financial instruments is no reason to ban or “regulate” (ew!) them.
Agreed and the CFPB also pointed out that a % (I forget how many) are high income users.
To your point, a friend had an opportunity to buy a big item at cost due to some weird tariff effect on a local vendor, at the time he was also set to pay for a big trip with his wife and daughter to Europe, a once in a lifetime thing. Spreading it out was a big help.
A bit late to this thread, but…
Also good (again for those who are not overextended) in an inflation environment – delaying (some of) your payment for three months interest-free is a sound decision.
I’m surprised that there’s not more comment about the economics, with the lender’s revenue coming from the merchant, at some quite steep rates. A total reversal of the commission model that has been so much in the news around the UK car finance business. The merchant would clearly prefer the customer to purchase without the finance, but the prime desire must be to convert the filled basket to a sale at all costs.
I thought that the evils of BNPL/“the instalment plan” were well known at least since the debut of Death of a Salesman in 1949.
Are we on a first name basis with him now?
Usury — that is, lending full-recourse at *any* rate of interest — is a disgusting and evil crime. We need to re-discover our horror of it, and punish the perpetrators accordingly. Usury is to fraud what robbery is to larceny.
One cannot “rent” money, because its use and its alienation from the user are one and the same thing. To use it is to own it.