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Have you ever bought a winter coat online only to find it looks nothing like the pictures you saw on the website when it arrived? While you will need to file a complaint with the merchant and possibly the credit card company before you get a refund, returning an item and getting a refund is usually straightforward when you buy it with a credit card.
But what happens when you buy the sweater using a “buy now, pay later” (BNPL) loan?
Will you have to continue making installment payments on the item even after you return it? Which company do you contact to resolve the issue: the BNPL provider, the merchant, or the issuer of the credit or debit card you used to fund the BNPL loan?
BNPL, also known as a point-of-sale loan, is an installment loan that allows consumers to split the cost of their purchase over time. BNPL options are available almost anywhere you shop, with a number of major retailers like Walmart, Amazon, Target, and Sephora using them. A recent Credit Karma study found that 44% of those surveyed had used a BNPL product at least once.
Yet, as consumers flock to this new way of financing, they need to be careful with them.
“BNPL loans are still new and government regulations have not completely caught up. This means that short-term financing options generally offer less protections for consumers, ”says Leslie Tayne, Founder and Managing Director of Tayne Law Group.
In fact, the Consumer Financial Protection Bureau recently warned consumers against the tendency to overspend when using BNPL services, the negative impact they could have on credit scores, their late fees and lack of consumer protection.
Below, Select takes a look at the consumer protections offered by credit cards, debit cards, and some of BNPL’s top providers to help you choose the one that’s right for you.
Consumer protection for credit cards, debit cards and BNPL loans
Consumers are offered a number of credit card protections through the Fair Credit Billing Act. There are two types of complaints that consumers can file with their credit card issuer: A billing error or a problem with the quality of a good or service. A billing error can be an authorized debit, an incorrect debit or a mathematical error. If you have a “billing error,” the FCBA requires credit card issuers to investigate if a consumer files a complaint within 60 days of receiving their account statement.
If the FCBA does not apply to the quality problems of a good, the consumer can nevertheless file a complaint with its issuer. Since this type of complaint is subject to state law, consumers are more likely to resolve their issue or be reimbursed if they meet certain conditions, such as purchasing the item in their country of origin.
The FCBA only applies to “open” credit accounts, such as credit cards or retail cards with revolving accounts, so these rules do not apply to debit cards or installment loans, such as BNPL loans.
It’s also worth noting that some credit cards, like the Platinum Card® from American Express, offer benefits that include return and purchase protection, which can help you get your money back after the policy expires. return from a retailer, or if your purchase has been lost, stolen or damaged.
However, people who use debit cards also benefit from fraud fee protections through the Electronic Funds Transfer Act. Like credit cards, these protections do not apply to product quality issues. If consumers have any issues with the quality of a good or service they purchased with a debit card, they will need to resolve the issue with the merchant before contacting their debit card issuer, including some have their own zero liability policy.
BNPL loans, on the other hand, are not subject to the regulation of credit or debit card issuers. While countries like Britain are putting in place regulations on the BNPL industry that would allow consumers to file a complaint with a national agency, there are no special regulations for BNPL providers in the United States. Some of the major BNPL providers, such as Affirm, Klarna, and Afterpay have their own dispute resolution policies in place.
“If you purchase a defective item with a BNPL loan, you are subject to the policies of the merchant and the BNPL lender, which can make it difficult to navigate the return process,” says Tayne. “In some cases, you may need to continue paying for an item until the merchant notifies the lender that you have returned it successfully.”
For example, Affirm has a dispute resolution process that works similarly to a credit card dispute resolution process: consumers have 60 days to open a dispute with Affirm. Once the consumer and the trader have submitted information to support their claims, Affirm will then rule in favor of the trader or the consumer.
Consumers should also check whether they are required to make payments on returned items. Klarna, Affirm, and Afterpay all offer consumers the option of delaying payments. Klarna will allow you to withhold payments if you report a problem with your order while Affirm will not require continued payments on a purchase if you open a dispute with them within 60 days of the transaction. Afterpay allows customers to extend the original payment due date by two weeks while the return is being processed.
Additionally, depending on how you fund your purchase through BNPL, you may need to contact the merchant, BNPL provider, and debit or credit card issuer to resolve issues. (Although some providers, like Affirm, just allow you to link your checking account for payments.)
Because Afterpay only allows consumers to pay with a credit or debit card, consumers are subject to the same protections as if they had used their payment cards directly at the retailer, says Amanda Pires, vice-president. president of communications at Afterpay.
This means that if you purchase an item with Afterpay and make payments with a debit card, you are subject to the protections offered by your debit card issuer. According to Pires, 90% of Afterpay transactions are funded by debit cards.
For consumers, knowing which companies to contact to return an item or report a defective item they purchased with a BNPL loan can be confusing.
Tayne suggests consumers contact the retailer to understand the return policy, research BNPL’s return policy, and as a last resort, contact the card issuer if they need further assistance.
“If a retailer does not accept the return or if the BNPL service is not cooperating, consider contacting the credit card company. The credit card companies will often ask you if you have tried to resolve the issue. with the seller, then do your best and dispute a transaction as the last option, ”says Tayne.
At the end of the line
Understanding your consumer protection rights as a credit, debit, or BNPL user can be complicated and confusing. Before returning an item that you believe is faulty, you should inquire about the return policies of the merchant, credit or debit card issuer or / and BNPL supplier. Most BNPL issuers and providers have dispute resolution procedures, but your first action should be to try and resolve the issue with the merchant.
If you don’t want to have to contact three different companies to initiate a return on a defective item, you should consider getting a credit card with a 0% APR introductory period on new purchases. Similar to some BNPL products, these cards offer a way to fund interest-free purchases, in addition to giving you the consumer protections of a credit card and maybe even earning rewards.
Editorial note: Any opinions, analysis, criticism or recommendations expressed in this article are the sole responsibility of the editorial staff of Select and have not been reviewed, endorsed or otherwise approved by any third party.