Online shopping's hidden peril: Experts raise concerns over escalating debt issues
In a bid to regulate online shopping, a draft bill has been proposed, including new rules for traders that involve the introduction of specific buttons [1]. However, the main focus of debate surrounds the impact of these new rules on "Buy Now, Pay Later" (BNPL) options, particularly concerning the risk of increased debt accumulation and insufficient borrower protections.
The concerns are manifold. The higher risk of overspending and debt cycles arises from BNPL's ability to allow consumers to make purchases immediately and pay later in installments, potentially encouraging impulse buying and spending beyond their means [1][2]. Without stringent credit checks or clear disclosure, consumers may accumulate multiple BNPL orders across merchants, leading to rapid debt accumulation and the potential for debt cycles similar to traditional credit card debt.
Another concern revolves around insufficient regulation and credit assessment. Historically, BNPL options have operated with less stringent credit checks than credit cards, raising concerns that the new consumer credit rules may not adequately protect consumers from overextending themselves financially or from predatory lending practices [4][5]. This is especially problematic for younger consumers such as Gen Z, who are already reported to struggle with managing high living costs and credit burdens.
The impact on financial decision-making and life milestones is another significant worry. Overspending through BNPL and credit contributes to delayed financial goals like saving, investing, and major purchases or life events because debt servicing dominates budgets. This effect has been observed with credit card debt and raises concerns that BNPL could exacerbate such delays if new rules do not curb overspending or improve consumer understanding and protections [2].
Furthermore, psychological drivers of debt persistence are a concern. Making incremental payments on BNPL, like minimum payments on credit cards, can create psychological traps where consumers underestimate their debt or feel burdened, leading to discouragement or further borrowing. New rules must address these behavioral aspects to effectively reduce harm [1].
Despite the concerns, the draft bill does not yet have the approval of the Bundestag. The Federal Association of Consumer Centers (VZBV) has praised parts of the draft bill for protecting against usurious interest rates and supporting people in financial distress. However, the VZBV has warned that the planned new rules for consumer credit could increase the risk of overspending [6]. Consumer advocates demand clear requirements for a precise examination of the repayment ability when granting BNPL and overdraft credits [7].
The VZBV has also criticized a lack of transparency in rejected credit wishes in the draft bill and warned that simplifying online consumer loan procedures could promote impulsive credit decisions, particularly with regards to BNPL credits, which could lead consumers into a debt trap [8]. The VZBV advocates for a signature to still be necessary for concluding online consumer loans [9].
A stark example of the potential risks associated with BNPL is an 18-year-old from Tübingen who accumulated debts of 3107.74 euros using BNPL options within three months [10].
In summary, while the new consumer credit rules aim to provide better oversight of BNPL to protect users, key concerns remain about their effectiveness in preventing overspending, especially among young adults and online shoppers, who are more vulnerable to impulse buying and credit accumulation enabled by BNPL offerings [4][5].
Personal-finance management becomes more critical with the rise of Buy Now, Pay Later (BNPL) options, due to potential increased debt accumulation among consumers [1]. Effective debt-management strategies are essential to avoid overspending and debt cycles similar to traditional credit card debt, especially for younger consumers like Gen Z [4].
