Pay-later services can fall into something of a gray area because of the length and terms of their products. They don’t carry the same dispute protections that consumers have come to expect from credit card providers, the Consumer Financial Protection Bureau has said, and getting refunds can be more complicated.
And last year, the California Department of Financial Protection and Innovation temporarily halted the top players’ main businesses and required them to refund nearly $2 million in fees after concluding that they had structured their products to evade regulation. To do business in the state, they must now be licensed lenders, which means considering consumers’ ability to repay loans, rate and fee caps, and responding to consumer complaints.
The services also require some self-regulation, users said.
Kimberly Williams, an avid user of several services, said she would only recommend them to people who are financially fastidious.
“You cannot use these types of plans and not be fully in sync with your finances, how the plans work and what you can afford,” said Ms. Williams, 42, a health care research site manager.
Ms. Williams previously worked as a wardrobe stylist and has a side business designing clothes that are manufactured in Lagos, Nigeria. She dedicates a portion of her monthly budget to clothing purchases that she often resells, which makes pay-later an attractive option.
As she’s used the services more, they’ve increased her spending power — $10,000 at Affirm, up from $2,000 — and she’s earned perks, like free shipping and the option of two additional weeks to make her first payment.
“The rewards, the benefits, the increase of availability to spend — it comes at you quick,” she said. “It becomes more and more tempting.”