JPMorgan Chase will ban customers from using their credit cards to pay for controversial “buy now, pay later” loans.
The largest U.S. bank said credit card payments to installment plans from companies including Klarna, Affirm and AfterPay will be declined starting Oct. 10.
Chase has been alerting customers about the change and telling them to link a new payment method to avoid late payments or late fees.
The bank said buy now, pay later (BNPL) loans are “a form of credit” and does not allow customers to pay for credit products with Chase credit cards. The New York Times reported.
Chase has its own BNPL service, Chase Pay Over Time, and some experts have suggested the move was likely made to generate interest in its own offering.
JPMorgan Chase to ban customers from using their credit cards to pay for 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 participating Chase credit card and can pay in six, 12 or 18 interest-free installments with an additional fixed fee.
“Chase is doing something other banks are doing slowly and methodically: pushing customers toward its own financial products,” said Alex Beene, a financial education instructor at the University of Tennessee at Martin. Newsweek Magazine.
‘The elimination of third-party programs means that customers who want a similar process will have to resort to paying in installments for those purchases in the future.’
American Express and Citibank also have their own BNPL offerings, while Capital One also banned the use of credit cards for installment loans with payment later in 2020.
Sarah Strauss, director of client services and strategy at Capital One, said: The New York Times that the bank ‘encourages its clients to make responsible decisions when paying their debts’.
‘Our long-standing policy is that we do not allow customers to pay off other forms of debt with Capital One credit cards, including buy now, pay later loans.’
BNPL financing gained traction with the rise of online shopping and experienced a boom during the Covid-19 pandemic.
While details vary by company, users typically pay no interest or fees if they pay their installments on time, whether in four, six or twelve payments.
Many lenders advertise their service as free, but users can be hit with large fees if they miss a payment.
Critics argue that service providers take advantage of vulnerable Americans, putting them at risk of going deeper into debt and potentially damaging their credit rating.
Consumer advocates have long called for greater regulation of the BNPL industry as delinquencies on traditional credit cards are on the rise.
JPMorgan Chase said buy now, pay later (BNPL) loans are “a form of credit” and does not allow customers to pay for credit products with Chase credit cards.
The Consumer Financial Protection Bureau announced a rule in May stating that BNPL companies must provide consumers with the same legal rights and protections as credit card lenders (pictured: Director Rohit Chopra)
Using credit cards to pay off short-term loans is frowned upon by regulators and consumer advocates.
Moving required payments to a credit card means users could end up paying higher interest if they carry a balance on their account instead of paying it in full each month.
According to LendingTree, the average interest rate on credit cards is 24.84 percent.
“It doesn’t make sense to use a credit card to pay off a loan that you pay off after you buy now,” Lauren Saunders, associate director of the National Consumer Law Center, told The New York Times. “It defeats the purpose of the loan.”
Earlier this year, the Consumer Financial Protection Bureau announced a new rule stating that BNPL companies must provide consumers with the same legal rights and protections as credit card lenders.
This includes the right to dispute transactions and demand a refund.
“Regardless of whether a shopper swipes a credit card or uses the Buy Now, Pay Later option, they are entitled to important consumer protections under long-standing laws and regulations already in place,” watchdog director Rohit Chopra said in a statement.