The unregulated boom in the 'buy now, pay later' market

'Buy now, pay later' loans for just about everything are growing.

But there’s barely any data or regulation on this emerging market.

Are consumers being helped or hurt by this new lending option?

Today, On Point: The unregulated boom in the 'buy now, pay later' market.

Tim Quinlan, senior economist at Wells Fargo. Author of the report "Buy Now Pay Later: The Phantom Debt."

Jennifer Chien, senior policy counsel in the Financial Fairness team at Consumer Reports, a pro-consumer non-profit. Author of the report "Buy now, pay later: Policy measures to mitigate consumer risks from evolving business practices."

Penny Lee, president and CEO of the Financial Technology Association, a Washington, DC-based trade association representing several “buy now, pay later” providers such as Afterpay, Klarna, PayPal and Zip.

 Jessica Kushner, 'buy now, pay later' user.

Deijanae Duncan-Graves, 'buy now, pay later' user.

Ann Butler, 'buy now, pay later' user.

Part I

MEGHNA CHAKRABARTI: This is On Point. I’m Meghna Chakrabarti.

Jessica Kushner has had bad credit since even before she knew what credit was. It all started when she was 12 years old.

JESSICA KUSHNER: My mom had a problem getting Christmas one year. So, she decided to sign up for the Fingerhut magazine and she got all of our Christmas presents on my name with the Fingerhut magazine. And I didn't learn about any of this until I myself had turned 18 and I was interested in getting something from Fingerhut magazine. When they told me, you're not approved because you owe us X amount of money. And I'm like, really? I was 12. Would you like my mom's information? (LAUGHS)

CHAKRABARTI: So, Jessica could thankfully laugh a little about that bad credit. But it meant that she couldn’t get a credit card. And not having a credit card meant not being able to improve her credit score. And that meant Jessica was locked out of most other important financial services such as home or car loans.

Jessica is now 46 years old. And you can imagine the frustration she felt from the credit paralysis. But back in 2020 — she heard about a new financial payment option; one she could access. They're called 'buy now, pay later' loans. It’s a lending service that allows consumers to spread out their payments for just about anything in multiple installments with no interest or fees.

KUSHNER: And so, I've been able to use those, and I use them frequently because there are a lot of purchases that I can't make right off the rip, but I need those things. You know what I mean? So, for me, that's very beneficial because oftentimes we find ourselves very broke. We're a little bit of a low-income family. So, our experience is that the PayPal Pay in 4 has been a blessing. Because we wouldn't be able to get groceries if it wasn't for that sometimes.

CHAKRABARTI: Clearly, Jessica uses it mostly for things she urgently needs. But she also admits she’s also used it for things she doesn’t need. Like a new $300 kitchen table.

KUSHNER: So that was an additional purchase that I didn't necessarily need, but because PayPal Pay in 4 was available on the Home Depot website. I got that table sitting right there, you know, that's something I wouldn't have splurged on something like that. I would not. And the PayPal Pay in 4 enabled me to purchase it without going broke on it. And I didn't need to change out my kitchen table. It's just, I thought that, well, hey, this might be available. And you know, I might as well. It enables me to buy my wants instead of just my needs only.

CHAKRABARTI: Could that be a slippery slope to endless splurging? Jessica says no – she’s not an impulse shopper, so even those “buying what I want” moments are kept to a minimum for her.

But that isn’t the case for everyone. More than a third of consumers say that they’re spending more than they would have because of the now ubiquitous 'buy now, pay later' options. That’s according to a survey by the Financial Health Network.

And 30% of consumers said they bought a product they wouldn’t have, but they could and did because of 'buy now, pay later.'

The reason — it’s just so easy to use. A few quick taps or clicks. And the companies often don’t run credit checks on consumers. While that’s exactly the thing that allows people like Jessica to be able to buy certain items, it also means that the companies do not know whether or not the person can make the four payments they now owe. Which can be a bad thing for the finance companies. But it could also be a good thing. We’ll talk about that in a minute.

So far, every time Jessica has used a 'buy now, pay later' service, she has made all her payments on time, so she’s never racked up any late fees or interest. But despite this — Jessica’s credit score has never benefitted from her responsible payments. That’s because these lending services aren’t required to report to any of the credit bureaus.

KUSHNER: Whenever you get into stuff like this, they will be quick to report your bad payments. You know, but they don't report good payment history. So, for people like me, who literally had like crappy credit, like it would have been awesome if when I made these payments, if they would have reported to increase my credit score so that I can actually get like a real credit card.

CHAKRABARTI: That was Jessica Kushner of Colorado Springs, Colorado.

Now Jessica is not alone, according to a report from the Consumer Financial Protection Bureau – 'buy now, pay later' loans grew an astonishing 970% in just two years, from 2019 to 2021.

Meanwhile the total dollar volume of those transactions grew from $2 billion in 2019 to $24.2 billion in 2021. A 1,092% increase.

And those numbers are only going up. Estimates show that the total dollar volume of 'buy now, pay later' transactions for 2023 could be as high as $46 billion, now that's a third of the total volume of credit card volume that year.

So the market is growing at a massive rate. But there’s very little regulation around this market. And as a result, not a lot of data on it. So, how much these services are helping or hurting consumers is not really known. But we want to find out as much as we can about that today.

Joining us now is Tim Quinlan. He’s a senior economist at Wells Fargo. Also, author of the report: “Buy Now Pay Later: The Phantom Debt.” And he joins us from Charlotte, North Carolina. Welcome Tim to On Point.

TIM QUINLAN: Thanks, Meghna.

CHAKRABARTI: Okay, so let's get a little bit of history. When and how did 'buy now, pay later' options, which now seem to be everywhere online, when were they first created?

QUINLAN: They got their start, believe it or not, in the kind of the beauty and apparel business where they were just trying to, as you described in the intro, reduce a little bit of the friction in the transactions.

But it began growing and catching on in a lot of other different industries and eventually found its niche in impulse purchases online. And since then, you pointed to some of these growth numbers. It's really accumulated quite a bit, the apparel and beauty merchants who combined to have about an 80% share in 2019, dropped to about 58% in 2021.

And there are a lot of individual firms that say that category is now much less than half of the business. So it's really growing in a lot of different places.

CHAKRABARTI: Wow. Okay. Again, just sticking with the history for a little bit, the apparel, the beauty industry, were the beauty companies themselves providing the finances for this, or were there third parties from the beginning?

There were third parties, generally, from the beginning. I don't pretend to know that there's not an individual merchant that wasn't offering their own, the growth of the industry started from some of these merchants that were providing the funding at the point of purchase.

CHAKRABARTI: Yeah. The reason why I ask is because, look, one of the first questions my mind jumps to Tim is who's ponying up the billions of dollars to risk on consumers and not be entirely sure whether or not these folks will be able to pay it back.

QUINLAN: It's a perfectly reasonable question. And as more and more entrants rush into the market, anything that's growing tenfold over the span of a couple of years, obviously that kind of draws a lot of attention and a lot of new players. And because it's not closely regulated, there's no uniform answer to that question.

In terms of who bears the risk in these transactions. I think that we're going to, this will be a running theme throughout the hour. We don't know, because of the lack of regulation. But this is really a volume game, isn't it, right? Because we're talking about, I don't know, hundreds of millions, even billions of potential transactions, right?

QUINLAN: Yeah. And that's where the market evolved a little bit. And some of the data that we do have is a little bit dated. But the average individual order in 2021 was $135 up from $121 in 2020. Now, obviously that's three years in the past. If I were to wager a guess, I'd bet the average transaction volume is actually going down.

But the number of transactions is rising. In plain English, people are using BNPL for less expensive stuff.

CHAKRABARTI: Yeah. Okay. And who are those folks? Do we know if there's any sort of pattern in who's using 'buy now, pay later'?

QUINLAN: Yeah helpfully, the New York fed in their economics blog, Liberty Street Economics dove into this in great detail.

And what they generally found is the take up rate for 'buy now, pay later' tends to be concentrated in people with lower income, lower credit scores, often disproportionately offered to and accepted by minority groups. And it's a reasonable thing to say, okay great. Buy now, pay later is a lifeline sometimes to people who you could say need traditional financing the most, and maybe are unserved by it.

But the question arises is, does this become an unregulated danger zone where you're lulling people into this sense of complacency that, Oh, I've got, a lot of small plant payments here, but does that add up to one really big problem?

CHAKRABARTI: Interesting. So we're definitely in the show, later in the show, we're going to come back to that in terms of who can benefits the most from having the access to things that otherwise wouldn't, and also how that same group is at risk here. But what are, like if you can't pay back over those four or five, whatever installments, what happens?

QUINLAN: Yeah. For starters, the concept sounds very appealing, right?

Who wants to, credit card interest rates now are comfortably north of 20%. That's the highest they've been in 30 years. If somebody offers me 0% financing, that's a compelling, you're inclined to take people up on it. What's not immediately clear is that if you're not current with this, and I think Jessica describes her experience with this a little bit, but you are charged late fees, and 10.5% of borrowers were charged at least one late fee in 2021.

And that was up from 7.8% the prior year. So while the category is growing, the late fees and the frequency and the share of people that are subject to those fees is rising as well.

Part II

CHAKRABARTI: Let's hear quickly from a consumer who sees 'buy now, pay later' as a really essential lifeline. This is Deijanae Duncan-Graves, 36 years old and lives in West Covina, California. She says she's been using 'buy now, pay later.' A specific provider called Afterpay for two years now, and she started using it first to buy beauty products and clothes, but now she says she uses it for about a third of all her purchases, including for airline tickets, sports equipment for her son, even over the counter medicines on Amazon.

DEIJANAE DUNCAN-GRAVES: The no interest option was amazing. I do have other credit cards and not all of your credit cards that you get have a zero APR. So sometimes with that minimum payment, you're only paying, you're paying more interest and you're not paying for the principal. I actually think that it gives us more financial freedom to be able to purchase the items that we need now, as opposed to maybe having to wait because we need to save for it. Don't take advantage of it. Use it to your advantage.

CHAKRABARTI: That's Deijanae Duncan-Graves in West Covina, California. We're joined today by Tim Quinlan, he's a senior economist at Wells Fargo, and I'd like to bring Jennifer Chien into the conversation now. She's a senior policy counsel in the financial fairness team at Consumer Reports.

She's also author of Buy Now, Pay Later: Policy Measures to Mitigate Consumer Risks from Evolving Business Practices. Jennifer, welcome to On Point.

JENNIFER CHIEN: Thank you. Hi, Meghna. It's a pleasure to be here.

CHAKRABARTI: Okay. First of all I just want to quickly go over the names of some of these companies, because it seems like they're popping up so quickly.

The ones I'm familiar with, Klarna, Affirm. We had our consumer earlier talk about PayPal. Are you familiar with some of the others that people might encounter?

CHIEN: Yes, those are the main ones. Afterpay, and I would say, those are the large ones.

CHAKRABARTI: And I'm seeing some credit card issuers also.

Chase, American Express. Yeah, go ahead.

CHIEN: We haven't even gotten into that. But one thing I would note is that it's a rapidly evolving industry and there aren't even clear definitions really on what Buy Now, Pay Later is. So the two things that it's useful to know are that there's increasingly providers that are offering.

They say, buy now, pay later, which is not the pay in 4, no interest option that Tim was just mentioning. So there's some offerings out there that they call themselves 'buy now, pay later,' but are actually interest bearing. And longer term, more than four repayments. In addition to that, you're seeing the mainstream financial institutions, like banks, introducing 'buy now, pay later' options within to, for example, credit cards.

So payments that you've already made, but then you split up into four repayments after the fact.

CHAKRABARTI: Usually, I can follow along when it comes to financial services, but that one's a little confusing. So a credit card company that you would already be, you could already pay in monthly installments with interest, they have some kind of buy now, pay later folded into that?

CHIEN: Yeah, so you can go into your credit card statement and select certain items to split up into smaller repayments.

Okay, smaller repayments that then wouldn't be interest bearing?

CHIEN: Depends on the time frame for what you choose in terms of the repayment.

CHAKRABARTI: Okay. Oh, that's interesting. So I this is all part of the we don't know. And who would actually ostensibly, if there were stricter regulations on it, what body would those regulations come from?

Jennifer. Hello. Hi. Can you hear me, Jennifer? Okay. We'll come back to that in just a second. Tim Quinlan, do you have an answer to that question? It seems like there are a lot of important questions or important issues that need to be settled when it comes to what we even define as Buy Now, Pay Later.

What federal or governmental institution would be in charge of that?

QUINLAN: You could, it could be, the Consumer Financial Protection Bureau is probably the first mover on this from the federal government's perspective. But each month, the federal reserve itself publishes the G8 report, which is a comprehensive breakdown of all of the various categories of household, from mortgages to prime equity lines to revolving lines of credit, auto loans.

The disclosures here are just a matter of the government determining that it's an appropriate thing that requires that level of regulation.

CHAKRABARTI: I see. Now, you call it phantom debt. Why specifically phantom debt?

QUINLAN: You can't see it. It's a little bit scary. And when you don't have the details on this stuff, it becomes problematic.

I think the primary concern when we think about this is, for the individual consumers, and I think it's well understood that it can be helpful. And you played the clip of the person who liked the idea of the small payments. But given the fact that the take up rate is so pronounced among people with lower credit scores and lower income, I just worry that it could ultimately add up to a big problem for them.

So that's your first order concern. But then what about policymakers? When the Federal Reserve is making decisions about interest rates and how they're impacting the economy, one of the things that we're struggling to understand right now is how consumer spending remains so strong, even in the context of diminished consumer confidence.

We've got fresh data on that this morning from the University of Michigan's consumer sentiment index. So how do you reconcile an environment where consumers feel really crummy, but spending is really strong. I'm not saying that BNPL is the sole answer to that question, but to the extent that they're providing an extra measure of credit.

That's not being captured, policymakers, the fed, are a little bit hamstrung in terms of their ability to follow it.

CHAKRABARTI: Okay. Jennifer Chien, I think we have you back. Is that right?

CHIEN: Yes. I'm here.

CHAKRABARTI: Okay. Tim's laid out some of the concerns about what we can't do because we simply don't know the data.

And also, I think by not being subject to a similar set of regulations as other financial services, there's things like truth in lending that perhaps, if I'm not mistaken, that 'buy now, pay later' services don't have to follow.

CHIEN: Yes. That's right.

CHAKRABARTI: Okay. So what are then your longer-term concerns on behalf of consumers?

You've written about how you think there are some significant harms that we need to be aware of.

CHIEN: So I would say there's three main concerns that we at Consumer Reports have. And I do want to highlight, I think what Tim has already mentioned that 'buy now, pay later' is a double-edged sword.

So yes, consumers do benefit from its convenience and the ability to split up payments and manage your cash flow, but there are real harms that consumers can fall into, that we are already seeing. So the three main harms I would highlight. One has already been alluded to and is somewhat obvious.

Consumers can become over extended and over indebted due to 'buy now, pay later.' And that's because of the types of consumers who are more likely to use 'buy now, pay later.' Tim referred to the Federal Reserve report. The Consumer Financial Protection Bureau has also done research on buy now, pay later users.

And had similar results. It showed that these users are typically, they're already worse off financially. They have lower savings, lower credit scores, and they already show signs of financial distress. And that's the segment we'd be concerned about. 'Buy now, pay later' becoming ubiquitous. For these consumers that are already financially strained and living paycheck to paycheck, they're very vulnerable to becoming more overextended due to 'buy now, pay later.'

In some of the research that we've done, one of the top reasons 'buy now, pay later' users, they cited for using 'buy now, pay later' was to purchase something they couldn't afford otherwise. And it is a risk for consumers already at a tipping point where they can easily end up taking out multiple 'buy now, pay later' loans and rung into or increase their existing financial stress.

So there's been some research that shows that 32% of respondents in one survey, they reported delaying or skipping payments on the essential bill due to having to make repayments on their 'buy now, pay later' plans. So as with any credit product, really, it's another means to become overextended.

CHAKRABARTI: I see.

CHIEN: Two, becoming overextended would really be the greater harm that's a concern, but there are two other risks that I would highlight. And one is, again, it would be obvious, as well, and it's losing track of payments. If you can imagine, 'buy now, pay later,' you're using it across different providers, across multiple purchases.

It breaks it down, sometimes into four repayments, sometimes longer. Just keeping track of all those payments is going to become increasingly difficult. And we've seen instances of consumers missing payments because they lost track. When we did a focus group of Buy Now, Pay Later users, one of our users checked their Buy Now, Pay Later account as part of the exercise and didn't even realize they had three outstanding 'buy now, pay later' loans.

All that is a concern to us, and it's a concern because if you miss a payment, as was mentioned before. It no longer becomes a free product. You can incur late fees, and the late fee policies in the market are, there's a range, and some of them are more concerning than others. There's late fees that can go, become quite a high flat fee, relative to the amount that's being purchased.

There's some instances of multiple late fees being charged for a single missed payment, and consumers can be surprised by that. You can also incur overdraft fees. If you're overdrawing your account, your checking account, which is linked to the 'buy now, pay later' plan. So it becomes not really as free of a product as people may think it is.

CHAKRABARTI: Okay. I'm hearing my parents in my head saying nothing in life comes for free.

CHIEN: Exactly.

CHAKRABARTI: But I want to actually play a little bit of tape from another person who has used 'buy now, pay later.' This is Ann Butler from Richmond, Virginia, and she used the service PayPal Pay in 4, I'm sure lots of people have seen it, to buy bike parts for her husband and for her six year old daughter.

And she said it made it really easy to buy the products, but then she needed to return them, and it was a whole different story.

ANN BUTLER: I could not get a representative over the phone. I've also had the hassle of if I do get a representative, the representative isn't equipped to either deal with my problem or they can't understand my problem.

And so I'm having to do this back and forth on their website with their on site messaging. And I'm having to log back in and check to see if there's been a response, and then when it finally was resolved, it was resolved in this wonky way where it was posted to my account, my PayPal account, but not the original payment method, which had been a bank card and in order to get that money back in my bank account, I had to pay a fee.

It was not fun for me to realize that I would be left twisting in the instance of an issue, and I also didn't like having over a hundred dollars in this weird gray area for over a month. A hundred dollars to me is a lot.

CHAKRABARTI: So that's Ann Butler of Richmond, Virginia. And she thinks that the poor customer service that she got was due to that lack of regulation that we've been talking about, and that she's not going to use 'buy now, pay later' again.

So Tim and Jennifer, hang on for a second, because now I want to bring in Penny Lee. She's president and CEO of the Financial Technology Association. It's a Washington, D. C. based trade association that represents many businesses in the fintech industry, including several 'buy now, pay later' firms like Afterpay, Klarna, PayPal, and Zip.

Penny Lee, welcome to On Point.

PENNY LEE: Nice to be here.

CHAKRABARTI: So you've heard both Tim and Jennifer lay out a bunch of concerns about the rapid growth of the industry, both from the consumer side and the policy side of things. So first of all, regarding potential harms to consumers. How do you respond to that?

LEE: I think it's important just to realize what the industry is. And as Jennifer alluded to, this lack of definition. And I would say, go back to what the CFPB, and what they have designated 'buy now, pay later' is to be these pay in 4, zero interest on outstanding balances. And so we have a lot that are in the industry now, as she was alluding to, that credit cards, banks and others that are marketing that they're a 'buy now, pay later' when in fact they are installment loans, they have interest, they pay interest over revolving debt.

Their business model is made off of fees. Whereas, you would say that the original 'buy now, pay later' and those that are operating in this pay in 4 space, they have very different models, and they are models that are not based on fee harvesting. They're based on agreements with merchants. They are based in which they want consumers to, they start the consumers out at a very low rate, say a hundred dollars. They want to see them consistently paying and then we'll start to increase their allotment or allowing them to maybe purchase higher things. They succeed when consumers --

CHAKRABARTI: Penny, can I just jump in here? I just want to jump in to clarify something.

So you said, when you said it's based on agreement with merchants, it's like the merchants get, give the companies a kickback for every transaction, essentially?

LEE: There's an agreement. There's a revenue share with merchants.

CHAKRABARTI: Okay.

LEE: To be able to use the 'buy now, pay later' product or payment optionality.

So that is the vast majority of the revenue for these companies. So, I want to make sure that we're talking about the same things, because there's a lot of conflation that is happening right now. And I represent those that are in that pay in 4, zero to low interest on an outstanding balance type product. So I want to make sure that we're talking about the same things. And just to push back just a little bit on this notion that they are unregulated. In that pay in 4 model that I was speaking to, 80% of those loans are bank issued loans and they are subject to the same regulations that all banks are required.

So it's a whole alphabet soup. BSA, AML, KYC, fair credit reporting, a whole host, as bank issued loans, that regulation that the bank, it requires them, the 'buy now, pay later' company to also be subject to those same regulation, subject to supervision, subject to examination, the CFPB, they are subject to market monitoring by the CFPB as well, in which they regularly release data into the CFPB to show and demonstrate various different questions that the CFPB is asking. So this whole notion that they're unregulated just is inaccurate, and I want to make sure we correct the record on that.

Part III

CHAKRABARTI: Tim, I just wanted to turn to you what Penny had said before the break, that she said approximately 80% of these loans are bank issued loans. And so therefore they are regulated and so perhaps maybe it's not as much of a phantom service as we had been previously discussing. Your response?

QUINLAN: I have no beef with the idea that 80% of the loans are regulated. The 'buy now, pay later' providers themselves have, all of their funding is vetted and clarified. What I worry about is since the accounts are not, excuse me, since the accounts are not reported to credit reporting agencies, consumers who pay on those accounts is agreed. Don't benefit from their positive performance.

And regulators have reasonable concern that consumers may be carrying debt that's not visible to other financial service companies, including, for what it's worth, other buy now, pay later lenders. So in the event that the consumer has a problem with payment, there's risk that the consumer will experience negative credit consequences, as Jessica did in the introduction of your segment. So it's not that the firms themselves aren't regulated. It's that we don't have any delineation about the composition of credit transaction volumes, who's carrying the debt, what their payment history is on it.

And those are the kinds of metrics that are widely available in, for example, consumer credit card lending. So I think that would be my response.

CHAKRABARTI: So Penny, this is actually exactly something I wanted to ask you, because the 'buy now, pay later' loans, I mean they, or lenders, they happily report to the credit bureaus when payments are missed or late.

Why not also do the opposite? Why not report when those four payments are made on time and responsibly?

LEE: That's actually not true. I know, again, I can speak to the members in which we represent and so it's, yeah, I would say. Of the five largest 'buy now, pay later,' they actually don't report when it's negative, when somebody misses a payment or when it's positive.

Unfortunately, we have been in active conversations with the credit bureaus to try to have them modernize their own modeling. Right now, even experience recently had an agreement, has had entered into an agreement with Apple Pay Later. Even in their own FAQs, they said, as of today, scoring models that exist aren't designed with BNPL in mind, but they may, in the future, as new credit scored models are developed.

So right now, unfortunately, the reporting agencies don't have the ability to able to capture real time BNPL information in a way that wouldn't harm them. When you take out a 'buy now, pay later' loan right now, and you have multiple ones, it looks like you've maxed out your credit for each one of them.

And because of that, it would score you negatively. What we believe, and agree with Tim, agree with Jennifer, is that somebody repaying every two weeks $25 consistently, on time, responsibly, that should go to positive credit history. Unfortunately, the modeling isn't there. But we are in active conversations, we're in earnest conversations with the bureaus and other private sector potential solutions to be able to get this modeling correct. Because we do believe that this is a product that should bode positively for your credit score.

CHAKRABARTI: Okay, all three of you. You can imagine my confusion right now. Because I'm hearing they don't report positive repayment and only report negative repayment to the credit bureaus.

Penny's saying nothing is reported from her clients. Either way, I need to understand, what is the truth here? How do we best understand the truth? Jennifer, I'm going to give you the first crack at that.

CHIEN: Please I can chime in. I would just circle back to what I said before. It's not well defined what the boundaries of this market are.

As Penny said, she has five 'buy now, pay later,' and the traditional pay in 4, 'buy now, pay later' in her association. There's other 'buy now, pay later,' pay in 4, as well. And there's 'buy now, pay later' beyond that. For example, we, at Consumer Reports, we conducted an evaluation of a range of 'buy now, pay later' companies, and we found that there is a mix of practices with respect to credit reporting and quite a wide range.

Some 'buy now, pay later' companies did not report any information, as Penny said. Some reported positive and negative information just to one of the credit bureaus. One reported just negative information, as Tim alluded to. It's another instance of inconsistency in the market, partly because it's not fully regulated from a consumer credit perspective.

And our concern is from a consumer protection perspective. So there is not a consistent approach towards reporting information to the credit bureaus. And as Penny said, it's critical to consider that there isn't adapted approach yet within credit bureaus to consider how to treat this information, so that it doesn't harm consumer credit scores.

CHAKRABARTI: This seems to happen frequently in fintech, right? That new products are created. And great, innovation in finance. It's wonderful. But at the same time, there's a catch-up game that has to be played by federal regulators. And, also, as you're saying, even the credit bureaus, to be sure that the new products don't metastasize into something that ends up not just harming consumers, but the entire economy.

Hello, 2008. So where would you start in terms of, Jennifer, in terms of trying to perhaps even first principles, get some definitions for what regulators actually consider as buy now, pay later?

CHIEN: So I would say from the advocacy, a consumer advocacy perspective and from consumer reports, we think there should be regulation of 'buy now, pay later' as credit. Because it is essentially like a credit product, but in a reasonable and proportionate manner. And this is the approach that's been taken in Australia, in the UK, applying the existing credit framework, the consumer credit framework, but having some adaptations for the unique characteristics of 'buy now, pay later,' which is essentially deferring payment on, it's essentially credit.

If you put in place some of the core provisions of existing financial concern protection regulation and laws, related to credit, you would have, you would address some of these issues about reporting to credit bureaus applying chargeback rights to 'buy now, pay later,' which would help resolve some of the issues with disputes, ensuring that there's clear disclosure of any costs and the risks you might incur. And for us in particular, having some sort of reasonable lending practices in place to ensure that buy now, pay later companies, they assess the ability to repay.

There's other practices you can promote, like limiting loan stacking or taking out multiple 'buy now, pay later' loans. All of these would be beneficial to have in place to try to address the risks that come with 'buy now, pay later' so you can use it safely.

CHAKRABARTI: So Tim Quinlan, I got to be in my bonnet about something about this.

And that is, both you and Jennifer very clearly laid out, there are risks here, right? You can lose track of payments. You can perhaps not even know that things are due. You can rack up a lot of these, pay in 4 or whatnot. And that, as both of you said, we're oftentimes, the 'buy now, pay later' like other financial products, are targeted towards lower income and minority communities who are already disproportionately dinged when it comes to credit scores on multiple things.

All of that is true. But at the same time, what about personal responsibility? We're asking people to keep track of four payments on a low dollar value. And if they are willing to buy something now, I'm not saying, okay, take the ten hours to read all of the fine print, but at least, I don't think it's unreasonable to expect people to keep track of money that they're spending, even if they have to make four payments in advance.

The risk, they are taking on a risk, and so therefore they have to bear the cost of that risk.

QUINLAN: Sure. Listen, the original buy now, pay later was layaway, right? And the personal responsibility piece was you didn't get the thing that you wanted to buy until you made all of your payments. And there is an element to be attributed to personal responsibility in this.

And I don't think that there's anything about what we've said so far that's at odds with that. Like I'll give a kind of a different example. There've been instances where I've wanted to watch a specific football game this year, and I've had to download some different subscription service that I didn't have.

And sometimes you're watching it through one platform and a different TV uses another platform. And I eventually look at my credit card statement and realize I've been paying for the same subscription service on two different platforms, and I want to kick myself for it. And yeah, there's a degree of personal responsibility that's attributable there.

But when you reduce the friction for a lot of these transactions and provide that convenience that consumers like so well. It can add up to a little bit of lack of transparency. And I don't think there's malicious intent on the part of any of these providers. They're giving consumers what they want and giving them something that's easy and frictionless and convenient.

But I hear you, it is up to the individuals, but I can attest that I consider myself pretty fiscally responsible and I've made some basic mistakes with some of this stuff, and that's why I don't trust myself to pile on a bunch of these PNPL options.

CHAKRABARTI: Tim, you work at a bank. I'm upset to hear this. (LAUGHS)

I would expect someone who works at a major financial firm to be like, Nope, I've got my spreadsheet. It's always going. But Penny Lee, let me turn the opposite side of that question to you, because look, we have ample history of low income and minority communities who already are, have a much more fragile financial life, being the targets of these kinds of new, more or less unregulated products.

And I can understand the great advantage of the digital world allowing a billion transactions to go through and Klarna and Afterpay and whatnot, they're making, even if they're making like a fraction of a penny on each transaction from the vendors. They're making a ton of money, but the digital world also allows that very fine targeting of services to people.

And can you say that your companies are not targeting low-income minority communities who are, perhaps more vulnerable while also because they can't get regular kinds of credit?

LEE: I think what the New York Times, or the, sorry, what the New York Fed study also showed was that you're seeing individuals from all different kinds of income brackets using this product.

And why are they using it? Because it's giving them price certainty. They know that when, if they're paying this in four, on time, they're incurring no other fees. And so it gives them price certainty. It gives them flexibility. It allows them to be able to fit their own budget needs or their own pay cycles.

So that is really important. And I also think another thing to really emphasize is that, and this is publicly available data. Many of these companies are publicly, especially some of the large firms, are publicly traded companies. And so they publish. Right now, the industry on average is seeing a less than 2%, less than 2% delinquency rates.

And so many of the people, fast, 98% are paying for 'buy now, pay later' through 'buy now, pay later' products, on time, regularly, and consistently. And so I don't want us to be looking and searching for a problem that might not be there when you have a less than 2 percent delinquency rate on these folks.

Financial Health Network also put out a survey and they said 99% of BNPL users understood the terms and conditions. They know what they are using, and they're using it responsibly. We're seeing that consistently. And we're seeing those numbers over time, I've seen them come down to now, some members are even seeing it as less than 1% on a delinquency rate.

So want to make sure we have this all in context.

CHAKRABARTI: Tim, I'm going to give you the last word here today. We've got about a minute left. Jennifer went through quite a good list of changes she thinks can be made in the short term, would you add anything to that? What would you like to see change so that there is better definitions and a clearer data on exactly what's flowing through the 'buy now, pay later' industry.

QUINLAN: Yeah I think, first of all, I don't assign any positive or negative characteristics to any of the transactions that are going on in the space. All I want is clear disclosure in terms of what the lending looks like, what the transaction volume looks like, and I just want to be able to compare it to other categories.

I want to look at it concurrent with credit card debt growth and growth in home equity lines of credit, mortgage debt. Because I see evidence of consumers that are in many other categories and debt up to their eyeballs and this could be something that's adding to it. And when I can't see it, I don't feel good about it.

So I'd just like to have more disclosure on the transaction activity and the lending. And I don't think, since we do that for every other category of credit in the United States, and especially if people are doing this. And saying, let the air in, we're not doing anything wrong, then, just show the data and I'd feel a lot better about it.