In a move that’s sure to shake up the financial landscape, JPMorgan Chase has announced it will prohibit customers from using its credit cards to pay for ‘buy now, pay later’ (BNPL) loans starting October 10.
This decision targets popular BNPL services like Klarna, Affirm, and AfterPay, effectively shutting down a payment option that has gained widespread use.
Chase has been proactively notifying its customers about the change, advising them to switch to alternative payment methods to avoid missed payments or late fees. The bank stated that BNPL loans are a form of credit, and it does not permit customers to use Chase credit cards to pay for other credit products, according to a report by The New York Times.
Interestingly, Chase has its own BNPL service called Chase Pay Over Time, which allows customers to split larger purchases of over $100 into monthly installments. This service is only available to users of participating Chase credit cards and offers repayment periods of six, 12, or 18 months with no interest but includes a fixed fee.
Financial experts suggest that Chase’s decision may be a strategic move to push customers towards its own BNPL offering. “Chase is doing something that other banks are slowly and methodically implementing: pushing customers to their own financial products,” Alex Beene, a financial literacy instructor at the University of Tennessee at Martin, told Newsweek. “Their elimination of third-party programs signals that customers who want a similar process will have to latch on to Pay Over Time for those purchases moving forward.”
This isn’t an isolated strategy in the banking sector. American Express and Citibank have also rolled out their own BNPL services, while Capital One has barred the use of credit cards for BNPL installment loans since 2020. Sarah Strauss, head of customer services and strategy at Capital One, emphasized that the bank encourages responsible debt repayment decisions. “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 told The New York Times.
BNPL financing has surged in popularity, especially with the boom in online shopping during the COVID-19 pandemic. Typically, these services do not charge interest or fees if payments are made on time, making them an attractive option for consumers looking to manage cash flow. However, critics argue that these services can prey on vulnerable consumers, potentially leading them into deeper debt and harming their credit scores. Missed payments can incur substantial fees, contrary to the advertised “free” service.
Consumer advocates have long called for stricter regulation of the BNPL industry, especially as delinquencies on traditional credit cards continue to rise. Regulators and consumer advocates frown upon using credit cards to pay off short-term installment loans because it can lead to higher interest charges if the balance is not paid in full each month. The average credit card interest rate is a hefty 24.84 percent, according to LendingTree.
“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 (CFPB) implemented a new rule requiring BNPL companies to provide consumers with the same legal rights and protections as traditional credit card lenders. This includes the right to dispute transactions and demand 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,” CFPB Director Rohit Chopra stated.
As Chase moves to implement its new policy, customers will need to adapt quickly to avoid disruptions in their payment plans. This decision underscores a broader trend in the financial industry where banks are increasingly pushing consumers towards in-house products and services, potentially reshaping how Americans manage their finances in the process.
