Apple Bakes More Predatory Lending Options Into the iPhone

During its WWDC keynote, Apple quietly revealed that Affirm's Buy Now Pay Later (BNPL) service will be offered when making purchases with Apple Pay. Financing options from Citi, Synchrony, and Fiserv will also find their way into Apple's payment processing platform.

Apple already offers a BNPL service called Pay Later. The addition of Affirm and other BNPL lenders will give iPhone, iPad, and Mac users the ability to choose from several 0% financing options every time they check out with Apple Pay. In other words, Apple customers can finance whatever they want, whether it's a new TV or a bag of groceries. The U.S. attorneys general has compared BNPL services to predatory lending. And, in the past, we've criticized Apple's use of BNPL. We believe that you should avoid these services when shopping, and my personal opinion is that Apple should be ashamed of itself for trying to bleed money from customers in this way.

Unlike credit cards and other traditional lending systems, BNPL services aren't shackled by intense regulation or consumer protections. The U.S. government recently issued an interpretive rule that gives BNPL customers the right to dispute charges, get refunds for returned items, and receive billing statements from their lender—that's great, but some of the most important protections listed in the Truth in Lending Act still do not apply to BNPL. Services like Affirm are not required to assess a borrower's creditworthiness, they can enforce far more penalties than a credit card, and they aren't required to report loans to credit bureaus like Equifax or TransUnion.

Apple Pay Later and Affirm both perform soft credit inquiries for new borrowers. While a soft inquiry is better than nothing, it's typically utilized by employers or landlords and rarely leaves evidence of a credit check on your credit report. This, combined with the fact that Apple Pay Later and Affirm rarely submit loan information to credit bureaus, makes it harder for lenders to assess the creditworthiness of borrowers who utilize BNPL. It's too easy for these borrowers to take out multiple loans and fall into a heap of debt with excessive late fees and other penalties.

While the U.S. credit report system is obviously imperfect, its purpose is to protect borrowers, lenders, employers, and other participants in the economy. A lender that operates outside of this system has the potential to negatively impact both everyday people and big businesses. And while the U.S. government is encouraging BNPL services to work with credit buereaus, both parties are worried that BNPL loans (which typically open and close in the span of a few months) will negatively impact borrowers' scores, thereby creating negative sentiment among borrowers. These lenders don't want to follow the rules that every traditional lender follows.

At the risk of sounding like a cranky nutjob, I'll take a moment to play devil's advocate. Let's say you want to buy a $1,000 set of golf clubs, or whatever. If you buy the golf clubs with cash, the $1,000 is gone. But if you finance the golf clubs over six months with a 0% interest plan from Affirm, you can park your $1,000 in a high-yield savings account where it will appreciate at about 4% APY. You're still paying just as much for the golf clubs, but you've also earned enough money to buy two Fillet-O-Fish meals at McDonalds.

If you pay your BNPL loan from a savings account (and only use BNPL for purchases that you can afford in cash), it's not a bad deal. In some circumstances, it can be better than using a rewards card. But the average person, regardless of their income, will not weigh the concept of "opportunity cost" when buying a set of golf clubs or a pair of sneakers on their iPhone. Encouraging users to take out a new loan every time they make a purchase is insane.

Yes, retailers already try to shove store credit cards down their customers' throats. And, yes, BNPL services are now built into the checkout processes of several websites. Should we pat Apple on the back for participating in this mess with its tin-can credit card and BNPL integration—I don't think so. It's a shameless cash grab that aims to take advantage of every user on Apple's platform, particularly those who lack financial literacy.

Prepare to see a bunch of extra BNPL junk in Apple Pay when you upgrade to iOS 18. If you're an Android user (or even just a Chrome user), you'll see something similar with Google Pay, which recently expanded its built-in BNPL options.

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