JPMorgan Chase will ban customers from using its credit cards to make payments on its controversial “buy now, pay later” loans.
The nation’s largest banks have announced that starting October 10 they will reject credit card payments for installment plans offered by companies such as Klarna, Affirm and Afterpay.
Chase is alerting customers to the change and telling them to link new payment methods to avoid missed payments and late fees.
The bank said buy now, pay later (BNPL) loans were “a form of credit” and that it did not allow customers to pay for credit products with their Chase credit cards. The New York Times report.
Consumer watchdog groups worry that BNPL services will lead to more debt for Americans.
Chase offers its own BNPL service, called Chase Pay Over Time, and some experts say the move is likely an attempt to drum up interest in the bank’s own service.
JPMorgan Chase will ban customers from using its credit cards to make payments on its controversial “buy now, pay later” loans.
Chase Pay Over Time allows customers to split large purchases over $100 into regular monthly payments.
Customers must use a partnered Chase credit card and can make six, 12 or 18 interest-free payments for a fixed, additional fee.
“Chase is doing what other banks are doing slowly and methodically: steering customers towards their own financial products,” said Alex Bean, a financial literacy lecturer at the University of Tennessee at Martin. Newsweek.
“The elimination of the third-party program means that customers wanting a similar process will have to rely on Pay Over Time for future purchases.”
American Express and Citibank also have their own BNPL offerings, and Capital One also banned the use of its credit cards for pay-later installment loans in 2020.
“We’re thrilled to be working with Capital One to bring this technology to market,” said Sarah Strauss, head of customer service and strategy at Capital One. The New York Times The bank said it “encourages customers to make responsible decisions when it comes to repaying their debts.”
“Our long-standing policy is not to allow customers to pay other forms of debt with their Capital One credit card, including deferred loans.”
BNPL lending became popular with the rise of online shopping and has surged during the COVID-19 pandemic.
Details vary by company, but typically users don’t have to pay interest or fees if they pay their installments on time (whether that’s four, six, or 12 payments).
Many lenders advertise their services as free, but users can be charged hefty fees if they miss a payment.
Critics say the servicers prey on vulnerable Americans, forcing them into more debt and risking damage to their credit scores.
Consumer advocates have long called for greater regulation of the BNPL industry, given the rise in delinquencies on traditional credit cards.
JPMorgan Chase said that pay later (BNPL) loans are “a form of credit” and that customers cannot pay for credit products with their Chase credit cards.
The Consumer Financial Protection Bureau issued rules in May saying BNPL companies must offer consumers the same legal rights and protections as credit card lenders. (Pictured: Bureau Director Rohit Chopra)
Using credit cards to pay off short-term installment loans is frowned upon by regulators and consumer protection groups.
By shifting required payments to a credit card, users could end up paying higher interest if they carry a balance in their account rather than paying it off in full each month.
According to LendingTree, the average interest rate on a credit card is 24.84 percent.
“Using a credit card to pay off a buy now, pay later loan makes no sense,” Lauren Saunders, vice president of the National Consumer Law Center, told The New York Times. “It defeats the purpose of a loan.”
Earlier this year, the Consumer Financial Protection Bureau announced new rules stating that BNPL companies must offer consumers the same legal rights and protections as credit card lenders.
This includes your right to dispute a transaction and request a refund.
“Whether shoppers use their credit card or buy now, pay later, they are entitled to important consumer protections under long-standing laws and regulations already on the books,” Rohit Chopra, the watchdog’s executive director, said in a statement.
