Chase Credit Card To Ban 'Buy Now, Pay Later' Schemes Starting Oct. 10 - Here's Why

JPMorgan Chase will restrict customers from using its credit cards to fund controversial "buy now, pay later" loans. Starting October 10, the US-based Investment banking company will decline credit card payments for instalment plans offered by companies like Klarna, Affirm, and AfterPay.

Chase has been notifying customers about the impending change and advising them to switch to a new payment method to prevent missed payments or late fees. In its announcement, the bank described buy now, pay later (BNPL) loans as "a form of credit."

Why Chase Is Saying No To 'Buy Now, Pay Later'

The bank further stated that BNPL prohibits customers from using its credit cards to settle debts on credit products, according to The New York Times. Chase itself offers a BNPL service, Chase Pay Over Time, and some industry experts speculate that the decision was likely made to encourage customers to utilise its product.

Chase Pay Over Time enables customers to divide larger purchases exceeding $100 into manageable monthly instalments. Customers must utilise a qualifying Chase credit card and can spread payments over six, twelve, or eighteen instalments interest-free but subject to a fixed additional fee.

"Chase is doing something that other banks are slowly and methodically implementing: pushing customers to their own financial products," Alex Beene, financial literacy instructor at the University of Tennessee at Martin, told Newsweek.

Beene explained that Chase's elimination of third-party BNPL programs indicates that customers seeking a similar payment option will likely need to adopt Pay Over Time for future purchases.

Last year, Apple initiated a gradual rollout of its BNPL service, dubbed Apple Pay Later, in the US to a select group of users, much to the dismay of its competitors. American Express and Citibank also provide their own BNPL options, while Capital One banned credit card usage for pay-later instalment loans in 2020.

Sarah Strauss, head of customer services and strategy at Capital One, told The New York Times that the bank advocates responsible debt repayment practices among its customers. "Our longstanding policy is that we do not allow customers to pay other forms of debt on Capital One credit cards, including buy-now-pay-later loans," she added.

BNPL financing surged in popularity with the growth of online shopping and experienced a significant boom during the COVID-19 pandemic. Data from Adobe Summit, the world's largest Digital Experience Conference held last year, revealed a surge in online shopping for home furnishings and groceries, driven by consumers increasingly utilising Buy Now Pay Later options.

While specific terms vary by company, users typically avoid interest or fees by making timely instalments, which can be spread over four, six, or twelve payments. As part of the promotion, several lenders claim their services as interest-free without revealing that consumers can incur substantial penalties for missed payments.

Critics contend that these providers exploit financially vulnerable individuals, increasing their debt burden and potentially damaging their creditworthiness. Consumer advocates have consistently urged stricter regulation of the BNPL industry amidst a growing trend of delinquencies on traditional credit cards.

Consumers Caught In The Crossfire

Regulators and consumer advocates strongly discourage using credit cards to repay short-term instalment loans. Transferring these payments to a credit card can result in higher interest charges if the balance is not settled in full each month, potentially exacerbating the financial burden on consumers.

According to LendingTree, the average credit card interest rate is 24.84 percent. "It makes no sense to use a credit card to service a buy now, pay later loan,' 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 implemented a new rule subjecting BNPL companies to the same legal safeguards as credit card issuers. This includes granting consumers the right to dispute charges and request refunds.

"Regardless of whether a shopper swipes a credit card or uses Buy Now, Pay Later, they are entitled to important consumer protections under longstanding laws and regulations already on the books," watchdog director Rohit Chopra said.

As the BNPL industry evolves, consumers face a complex landscape of financial options. With increased regulation and growing consumer awareness, it's essential to weigh the potential benefits and risks before opting for these payment plans.