JPMorgan Chase, the largest credit card issuer in the United States, has announced a significant policy change: starting October 10, customers will no longer be able to use Chase credit cards to repay “buy now, pay later” (BNPL) installment loans. This decision, communicated through an official statement, emphasizes that BNPL loans are a form of credit and thus should not be repaid using another credit product.
Chase has begun notifying its customers about this upcoming change, advising them to update their payment methods for BNPL accounts to avoid missed payments and potential late fees. However, the bank has not disclosed the proportion of its cardholders currently utilizing third-party BNPL services such as Affirm, Afterpay, Klarna, PayPal, and Sezzle.
This move by Chase is not unprecedented. In late 2020, Capital One, the fourth-largest credit card issuer, similarly prohibited the use of its credit cards for BNPL loans. The bank stated that it encourages responsible debt repayment practices and maintains a longstanding policy against using credit cards to pay off other forms of debt, including BNPL loans.
The shift in policy aligns with recent regulatory actions by a federal consumer watchdog agency to classify BNPL loans as credit cards, amidst rising delinquency rates on traditional credit cards. As banks become more cautious, they are increasingly wary of the competitive threat posed by BNPL lenders.
BNPL loans, akin to modern layaway plans, typically allow shoppers to pay for purchases in four installments over six weeks without incurring fees or interest if payments are made on time. However, missed payments can attract significant late fees. These services are integrated into online checkouts, some physical stores, and mobile apps, offering quick approval with minimal credit checks.
Consumers usually link their BNPL accounts to a payment method such as a debit card, bank account, or credit card, with payments automatically deducted. A report from the Federal Reserve Bank of Boston revealed that as of October, over 9% of consumers had recently used a BNPL loan, marking a 40% increase over two years.
Financial regulators and consumer advocates criticize the practice of using credit cards to repay BNPL loans, citing the risk of accumulating more debt; this practice negates the purpose of BNPL loans. Instead, consumers seeking credit card rewards should use their cards directly for purchases.
Research indicates that financially vulnerable consumers are more likely to use BNPL loans, raising concerns about the potential for increased indebtedness. A report by the Consumer Financial Protection Bureau highlighted that BNPL borrowers are typically more indebted, carry credit card balances, and have lower credit scores. Experts note that credit card companies prefer customers to use their own “pay later” options. Chase, for example, offers a “pay over time” program and a pay-in-four loan option for its checking account customers, featuring no fees or interest.
Consumer advocates see this restriction as beneficial for protecting consumers from overextension. Conversely, others view it as limiting consumer choice. Despite these differing perspectives, the policy is likely to steer consumers towards more responsible debt management practices.