CRL in the News
“It is marketed as interest-free, but consumers can find that they end up being charged more than they think they will,” said Nadine Chabrier, senior policy and litigation counsel at the Center for Responsible Lending. “Should they lose track of their payments or have multiple buy now, pay later purchases, they can get return payment fees, missed payment fees, account reactivation, rescheduling, all kinds of hidden fees that they weren’t aware of at the outset.”
The Center for Responsible Lending said in its comment letter that the current grading system wasn’t rigorous enough. But the advocacy organization also agreed with the bank groups that the proposal was too tough, noting that “no bank with $50 billion in assets would currently achieve” an outstanding score under the proposal.
“How does the underwriting work?” said Nadine Chabrier, a senior policy and litigation counsel for the nonprofit Center for Responsible Lending. “What are the fees, and how are they disclosed? Are they complying with state and federal debt collection rules? Are they investigating credit report inaccuracies? Are there deceptive practices in the marketing? And what are the interest rates?”
California is rightly considered a leader in technology, culture and public policy. For instance, our state famously broke new ground in the 1960s with auto emissions standards that the federal government later adopted. California must once again take the lead, this time to stop banks and credit unions from ripping off consumers with overdraft fees. Even as some banks and credit unions have cut back on overdraft fees, many depository institutions keep this gravy train running. The size of the fee — usually around $35 for each overdraft — far exceeds the cost to the depository.
The industry has faced accusations that it emotionally manipulates users and glamorizes debt, using social media influencers to drive adoption and marketing slogans such as this one from 2018: “Broke AF but strongly support treating yourself? Afterpay is now instore.” Using pay-in-four for groceries and other everyday essentials suggests economic precariousness, says Andrew Kushner, policy counsel at the Center for Responsible Lending in Oakland, Calif. That, he says, reinforces the need for stronger protections, “so it’s not going to cause more harm down the line.”
It can be difficult to get a refund if something goes wrong with the purchase, according to Charla Rios, deputy director of research at the Center for Responsible Lending, a nonprofit organization that educates the public about financial products. “They don't come with the same protections of credit cards, so the consumer may end up with no merchandise at all, but still have their money taken out of their accounts," she says.
ARMs today are less risky, thanks in part to borrower protections established by the Dodd-Frank Act, according to Ricard Pochkhanawala, senior policy counsel at the National Center for Responsible Lending. Dodd-Frank required lenders to fully document a borrower’s income and assets and their ability to repay an ARM before the loan was made, and it said that borrowers must qualify for the loan based on the fully-indexed rate, not the introductory or “teaser” interest rate.
To take her first steps onto the storied yard of her dream school, Bianca Jones didn’t just get the grades and write a strong application; she applied for five different types of financial aid, including a work–study position. She took on additional jobs, but still came up short of what she needed to pay for her Howard University education, so both she and her mother took out loans to make it possible.
In response to the risks posed by the BNPL industry, a push for regulation has also emerged. In March, 77 nonprofit organizations, including the Center for Responsible Lending and the Association for Financial Counseling & Family Education, called on the Consumer Financial Protection Bureau to implement stronger regulations on buy now, pay later companies. For its part, the CFPB has urged credit reporting bureaus to standardize procedures for reporting consumers’ buy now, pay later transactions.