“(BofA) is miles ahead of what Wells and Chase have done. Both of them did some reforms, we certainly applaud those changes, but they are still charging the $35 fee,” said Mike Calhoun, head of the Center for Responsible Lending and a long-time critic of overdraft fee practices. Calhoun sits on an advisory board that includes several other consumer advocacy groups that advised BofA on the changes.
Taylor Roberson, federal policy counsel at consumer advocacy group Center for Responsible Lending, told DW: "One of the most positive aspects of the product has to do with the potential for consumers who pay on time to have that payment history positively recorded on their credit reports. And that's perhaps where the benefits end." Roberson explained how at present, consumers are not rewarded by credit rating agencies for paying BNPL loans on time, partly because these lenders are not required to report their data like other lenders.
Financial institutions rake in billions annually from overdraft fees. Some banks and credit unions recently have curbed or ended these fees for their customers — for which they should be commended — but many more depository institutions quietly continue overdraft practices that, at their best, nickel-and-dime consumers and, at their worst, cause devastating, lasting harm to financially vulnerable families. Overdraft charges are too important to the bottom line to expect that urging these institutions to “do the right thing” will suffice. This is a systemic problem that requires strong action
“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. Absent policy
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.
Buy now, pay later (BNPL) apps have quickly risen in popularity – accounting for $142 billion in e-commerce transactions last year, according to a report from Worldpay. But some customers have reported that 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.