Buy Now, Pay Later Dangers in 2025: Fed Warns of Credit Risks

In March 2025, the Federal Reserve issued emerging guidelines for Buy Now, Pay Later (BNPL) apps like Afterpay, Klarna, and Affirm, citing:

• A 42% surge in BNPL usage since 2023 (Federal Reserve Bank of New York).
• 25% of borrowers now delinquent on payments (up from 14% in 2024).
• New CFPB lawsuits against two major BNPL firms for “deceptive fee practices” (April 2025).

This article explains what’s changed in 2025—and how to avoid the traps.

2025’s Biggest BNPL Risks

1. Credit Score Damage Is Now Inevitable

• As of January 2025, all major BNPL providers must report payment histories to credit bureaus under the Consumer Credit Reform Act.
• Good news: On-time payments can boost your score.
• Bad news: Late payments drop scores 20+ points (Experian data).

2. “Junk Fee” Crackdowns

• The CFPB recently fined Klarna $12 million for hiding late fees in “microprint” terms.
• New 2025 rule: BNPL apps must display fees upfront (e.g., “$35 late fee per missed payment”).

3. Debt Spirals Are Worse

• The average BNPL user now has 5 active loans (up from 3 in 2024).
• 34% of Gen Z borrowers use BNPL for groceries/utilities—a red flag for financial stress (TransUnion).

How to Protect Yourself in 2025

✅ Use apps that reward good behavior: Affirm now offers 5% cashback for perfect payment histories.
✅ Opt out of “auto-debit”: 62% of overdrafts stem from BNPL auto-payments (Bankrate 2025).
✅ Try “BNPL-free” months: Apps like Debitize convert BNPL plans into debit purchases.

The Bottom Line

The Fed’s 2025 rules will force BNPL apps to play fairer—but consumers still risk overborrowing. Stick to one loan at a time, and always ask: “Would I swipe my debit card for this?”

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Articles from CFPB on Risks from BNPL – Official warning about BNPL risks – Consumer Financial Protection Bureau Search Results