Chase to ban credit card payments for controversial service

JPMorgan Chase will ban customers from using its credit cards to pay for controversial 'buy now, pay later' loans. 

The biggest bank in the US said that credit card payments to installment plans from companies such as Klarna, Affirm and AfterPay would be declined from October 10. 

Chase has been alerting customers of the change, and telling them to link a new payment method to avoid any missed payments or late fees. 

The bank said buy now, pay later (BNPL) loans are 'a form of credit' and it does not allow customers to pay for credit products with Chase credit cards, The New York Times reported. 

Chase has its own BNPL service, Chase Pay Over Time, and some experts have suggested the move was likely made to drive interest toward its own offering. 

JPMorgan Chase will ban customers from using its credit cards to pay for controversial 'buy now, pay later' loans

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Chase Pay Over Time allows customers to break up bigger purchases of over $100 into regular monthly payments. 

Customers must use a participating Chase credit card, and can pay over six, 12 or 18 payments with no interest but with a fixed added 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. 

'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.'

American Express and Citibank also have their own BNPL offerings, while Capital One also barred the use of credit cards for pay later installment loans in 2020. 

Sarah Strauss, head of customer services and strategy at Capital One, told The New York Times that the bank 'encourages its customers to make responsible decisions when it comes to debt repayment.

'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.' 

BNPL financing gained traction with the rise of online shopping, and boomed during the Covid-19 pandemic. 

While details vary by company, users typically do not pay interest or fees if they pay instalments on time - whether that is over four, six or 12 payments. 

Many lenders advertise that their service is free, but users can be hit with large fees if they miss a payment. 

Critics argue that the servicers prey on vulnerable Americans, putting them at risk of digging themselves into further debt and potentially damaging their credit score.

Consumer advocates have long been calling for increased regulation of the BNPL industry, as delinquencies on traditional credit cards are rising. 

JPMorgan Chase said buy now, pay later (BNPL) loans are 'a form of credit' and it does not allow customers to pay for credit products with Chase credit cards

The Consumer Financial Protection Bureau announced a rule in May which said BNPL companies must provide consumers with the same legal rights and protections as credit card lenders (Pictured: Director Rohit Chopra)

Using credit cards to pay off short-term installment loans is frowned upon by regulators and consumer advocates. 

Moving the required payments to a credit card means users could end up paying higher interest if they carry a balance on their account rather than paying it off in full each month. 

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 announced a new rule which said BNPL companies must provide consumers with the same legal rights and protections as credit card lenders do. 

That includes the right to dispute transactions and demand a refund. 

'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 in a statement.