Klarna’s “OnePay Later,” pictured on the Walmart website, is one example of a buy now, pay later service, allowing shoppers to break payments into chunks. (Screenshot: Brandon Kingdollar/NC Newsline)
As North Carolina shoppers make their holiday purchases online, more and more of them are opting to click a relatively new button allowing them to “buy now, pay later.”
That option may look like a good way to stretch a tight budget during the holidays. But North Carolina Attorney General Jeff Jackson warned Monday that using “buy now, pay later,” or BNPL, services could place shoppers at risk of incurring massive debt. Jackson and six other attorneys general sent letters to leading BNPL lenders this week to determine whether they are abiding by consumer protection laws.
“Buy-Now-Pay-Later loans may seem simple and safe, but they can lead to surprise fees and growing debt,” Jackson said in a statement. “Laws exist to protect North Carolinians from predatory lenders, and we are going to make sure these lenders are following the law.”
The programs work by allowing shoppers to break up purchases into smaller payments, typically on a monthly basis, through automated bank withdrawals. While many consumers use them to make expensive purchases more manageable, the offerings have exploded in recent years, with even food delivery services offering customers the option to pay on a monthly basis.
If customers fall behind on payments, some companies charge late fees, which can quickly accumulate into larger debts. Automatic withdrawals that bounce can also trigger bank overdraft fees and reports to credit institutions, making it harder for consumers to qualify for loans in the future.
The letters, sent to financial companies Affirm, Afterpay, Klarna, PayPal, Sezzle, and Zip, include a battery of questions around how each addresses payment disputes, late repayments, eligibility determination, and credit reporting among other loan terms.
“We are concerned that BNPL companies might not be providing their customers with appropriate protections when they return their purchase, never receive what they ordered, or experience other billing errors,” the attorneys general wrote. “We are also concerned that BNPL providers may not adequately assess borrowers’ capacity to repay their loans.”
The use of BNPL programs rose sharply during the pandemic as an alternative to credit cards. According to a 2024 Federal Reserve report, 15% of adult survey respondents said they had used such a service in the last 12 months, up from 10% in 2021. Of those, roughly a quarter said they paid late, up from 15% in 2021.
More than half said they shopped with BNPL because they could not afford their purchases otherwise. Among respondents making under $50,000 a year, that percentage spiked to 72%. And while services vary over whether they charge late fees, a majority of respondents reported they were charged extra for missing payment dates.
Miranda Margowsky, a spokesperson for the Financial Technology Association, which represents Afterpay, Klarna, PayPal, and Zip among other financial technology companies, said their consumer data shows that responsible use of the services, including “repaying in full and on time,” is the norm.
“BNPL is a valued payment method that allows people to split the cost of a purchase into four installments with no interest, no revolving debt, and no hidden fees,” Margowsky said. “These products are safe, regulated, and consumer-friendly, with a business model centered on consumer success, not fees.”
Klarna spokesperson Clare Nordstrom said the company “has built strong safeguards” into its program, including eligibility assessments and service pauses after missed payments. Those protections, she said, have helped ensure a more than 99% repayment rate.
Affirm spokesperson Brian Levin noted that the company does not charge late fees and that they are eager to engage with lawmakers on regulatory concerns. “Our success is aligned with consumers and responsibly extending access to credit. We underwrite every transaction individually and we provide consistent and transparent disclosures at checkout.”
According to North Carolina Department of Justice spokesperson Nazneen Ahmed, their office has received dozens of complaints against BNPL lenders, including 53 against Affirm and nine against Klarna. NCDOJ has also received 454 complaints against PayPal, but most relate to other services offered by the financial technology company.
The inquiry is the latest in a series of legal efforts by Jackson’s office to protect consumers in the ever-growing online commerce sector. Last month, he joined a letter to e-commerce platform Shopify over cutting ties with unlawful tobacco storefronts.
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