What ‘Buy Now, Pay Later’ Defaults Say About the Consumer

DealBook|‘Bellwether of Risks’: What ‘Buy Now, Pay Later’ Defaults Say About the Consumer

“Buy now, pay never”

For months, economists have warned that consumers faced an affordability crunch, a prediction supported by a lousy first quarter G.D.P. report.

Now, new data suggests that there’s a credit crisis brewing: a rising number of defaults for “buy now, pay later” loans, the typically zero-interest debt used for things like sneaker purchases and DoorDash deliveries.

In the Biden era, the Consumer Financial Protection Bureau warned that pay-later customers would be especially vulnerable if the economy worsened, and called for measures to safeguard them. That’s in jeopardy as President Trump has essentially tried to dismantle the watchdog, Grady McGregor reports.

The context: Pay-later borrowing in the United States has soared rapidly, with American consumers taking out more than $75 billion worth of these loans in 2023. But as household finances deteriorate, buy-now-pay-never fears have grown; late payments were on the rise over the past year.

Democrats on the Senate Banking Committee plan to intervene, some with knowledge of the matter told DealBook. Concerned about rising defaults, they intend to call for more oversight of pay-later lenders, including pushing for more robust reporting on their loan losses.

The consumer bureau did not respond to a request for comment about the Democrats’ plan.

Pay-later lenders see no reason for alarm. That’s despite Klarna, one of the biggest providers, reporting a 17 percent year-on-year rise in credit losses this month. The company — which paused its I.P.O. plans amid tariff-related market volatility — acknowledged that its losses were growing, but said that its default rate rose only marginally and represented a tiny share of its total loans. “There’s nothing troubling or worrisome from this data,” Clare Nordstrom, a spokeswoman, told DealBook.