'Buy now, pay later' is sending the TikTok generation spiraling into debt, popularized by San Francisco tech firms

Editor’s note: This story was updated at May 5, 2:10 p.m., to correct that 
buy now, pay later constituted 91% of California consumer loans in 2020, 
not 2021, and to clarify that lender Affirm does not charge late fees.

Do a quick scan of TikTok and you’ll find trendy young people casually 
blowing hundreds or thousands of dollars on clothes and jewelry, often set 
to the clattering, bass-boosted din of Florida rapper Saucy Santana’s 
fittingly titled “Material Girl.” Plenty of those influencers get the 
goods they flaunt for free. But if you don’t have the followers, or the 
up-front cash to blow, TikTokers have a tip: Just use “buy now, pay later” 
services, the hottest new way to take on debt.

You may have seen some of these names — Klarna, Sezzle, Zip (formerly 
Quadpay), Afterpay and Affirm — pop up as you shop online, presenting an 
easier, more seamless alternative to having to type out your credit card 
information again and again. With a few clicks and a small down payment, 
you’ll have what you ordered on hand — all you need to do now is complete 
your four payments.

The services, also known as point-of-sale loans, are heavily marketed by 
influencers and brands on TikTok and Instagram. They giddily display their 
“hauls” from the most popular brands, not just normalizing debt, but 
actually glamorizing it — and selling it as a way for trend-conscious 
young people to have all the coolest consumer goods, whether they have the 
cash on hand or not.

One video, posted in September last year by TikTok user Lillian Bradford, 
features her in a faux-fur coat and gold earrings. “I was fully under the 
impression that I only owed maybe $300 max on Afterpay,” the text reads. 
Then a screenshot pops up with her balance: more than $2,000. (In an 
interview with the Daily Mail, the influencer later said the "video was a 
joke" that she did not anticipate would go viral.)


This new breed of lending firm bills itself as a friendlier, more 
responsible way to spend than credit cards; in an interview with SFGATE, 
an executive from industry leader Afterpay even suggested the loans are 
just a way to budget better.

The marketing pitch is certainly working. In 2021, Americans spent more 
than $20 billion through buy now, pay later services, an ever-increasing 
chunk of the $870 billion-a-year online shopping pie. 

In California alone, 91% of all consumer loans issued in 2020 — defined by 
the California Department of Financial Protection and Innovation as loans 
for “personal, family or household purposes” such as car, utility or 
medical loans — were buy now, pay later loans, also known as point-of-sale 
loans. 

Gen Z, in particular, has fallen in love with the short-term loans, 
spending 925% more now through point-of-sale services than in January 
2020. But coupling nearly instantaneous loans with an influencer-addled 
social media culture that prioritizes exorbitant spending and normalizes 
debt could be further jeopardizing the financial futures of young people 
through just four easy payments.

‘It’s technically free’
Most buy now, pay later services operate as a sort of hybrid between 
traditional credit cards and layaway. They provide short-term financing on 
anything from a Gucci handbag to an American Airlines flight, splitting 
the payment into four chunks, with the first payment due at the time of 
purchase. The rest is usually paid off either monthly or every two weeks. 

“These buy now, pay later programs incentivize people to spend above their 
means, because they're like, ‘Oh, well, it's only this amount over four 
months,’” Celesta, a Bay Area fashion influencer on TikTok who posts as 
@itscelesta, told SFGATE. (She declined to give her last name.) “People 
almost like brag or joke that ‘oh, it was only 24 payments of $20’ or ‘I 
got it with Afterpay, so it's technically free.’” 

Retailers, too, shill for buy now, pay later services, which can 
significantly boost their revenues by encouraging people to spend more. 
Consumers, on average, spend $365 on a single purchase using Affirm, 
according to data the company provided to SFGATE. The average cart size 
across the internet in 2020 was about $100. That’s more than worth the 3% 
to 4% cut the services take. Afterpay has gone as far as to roll out its 
own consumer holiday, in the spirit of Amazon’s Prime Day: Afterpay Day. 

Briana Fountain, a 27-year-old Atlanta designer and wellness blogger who 
posts on TikTok as @thebloomingbabe, first began to see these services 
courting young women through trendy fashion websites — Anthropologie and 
Urban Outfitters among them. 

“As [buy now, pay later] grew in popularity, you saw it plastered on the 
front of clothing websites and makeup websites and perfume websites,” 
Fountain said. 

Indeed, fashion purchases remain at the core of many buy now, pay later 
services. In a report provided by Afterpay, 73% of its Gen Z consumer 
spend is on fashion — high-end couture and H&M alike. And on TikTok, where 
trends accelerate at lightning speed and ultra-fast fashion has become the 
standard, staying fashionable requires entire wardrobe revamps, funded in 
large part by these companies.

Fountain also pointed out that people of color — already much more 
burdened by debt than white people — are especially likely to use the 
services. An analysis by financial data firm Morning Consult found that 
28% of Black and Hispanic Americans signed up for at least one point-of-
sale loan in January 2022, compared with 14% of white Americans. 

“The way in which [buy now, pay later companies] targeted and marketed 
this towards people of color as the newest version of layaway, to me, was 
intentional but also disgusting,” Fountain told SFGATE. 

Despite these concerns, the companies have built significant brand loyalty 
among young people. Both Celesta and Fountain have gotten backlash from 
people for daring to criticize “buy now, pay later” services on their 
profiles.

“A lot of them were like, ‘Oh, you’ve clearly never used it before’ or 
‘I’ve never missed a payment,’” Celesta said. “Basically, they were 
defending the company.”

Within the past year, Afterpay was hit with multiple federal class action 
lawsuits in California and Maine — alleging that the company did not 
adequately represent the hidden costs behind its service. 

‘Don’t claim to be something that you’re not’
Financial experts who spoke with SFGATE expressed significant concerns 
about the way companies are targeting Gen Z consumers. 

“They are marketing very heavily to an audience that is younger, that 
might not just have as much experience on how to use credit and what 
credit implications are or what it means to have multiple loans at one 
time,” Marisabel Torres, the California policy director of the Center for 
Responsible Lending, told SFGATE.


Few of the services do significant credit checks, which would help 
determine whether people will be able to repay the loans. And plenty of 
people are spending more than they can afford: 43% of Gen Z users have 
missed at least one payment, according to a survey by the polling site 
Piplsay. Of Gen Z consumers who used a point-of-sale loan for something 
they needed, 30% missed at least two payments, according to a survey by 
Credit Karma. 

“[Buy now, pay later companies] know that by shrinking that appearance of 
the upfront payment, that it's going to seem cheaper to people,” R.J. 
Cross, a policy adviser with the Frontier Group, told SFGATE. “There are 
plenty of interviews, especially with younger consumers, who have said 
‘Yeah, it does make it feel cheaper … yeah, I could buy that $144 makeup 
set that I wouldn't have bought otherwise.’”

The speed with which you can go from your shopping cart to having a 
product at your doorstep also concerns Cross. (One retailer even has gone 
so far as to say that Afterpay works best with “products where there’s a 
sense of impulse purchase.”)

“With credit cards, you have to actually submit an application and might 
have to wait for the card itself,” Cross said. “This is, you download an 
app and approval is actually given on a purchase-by-purchase basis, and so 
everything happens a lot faster.”

The companies are fully aware that their services encourage people to 
spend more. In fact, several of them market it as a benefit to stores that 
want to partner with them. 

“We do see larger cart sizes, larger purchases, relative to what they 
would put onto their debit cards and credit cards,” Libor Michalek, the 
president of technology at Affirm, told SFGATE.

Still, high-level staffers at Affirm and Afterpay — both based in San 
Francisco — positioned their services as more responsible, less predatory 
alternatives to credit cards and personal loans in interviews with SFGATE. 
They also emphasized the accessibility of these services, especially for 
younger consumers looking to bolster their credit and consumers working to 
restore their credit scores, despite the fact that many of the services 
don’t report on-time payments to credit agencies. (Affirm and Sezzle 
report both on-time and missed payments for some loans.)


Afterpay's general manager of global platforms and partnerships, Zahir 
Khoja, referred to his service as a “budgeting tool” in an interview with 
SFGATE, adding that most of its user base relies on debit cards as the 
funding source for payments. To him, that statistic emphasizes how 
important budgeting and responsible spending is to its users, many of whom 
grew up in the shadow of 2008.

“Buy what they want, when they want and have the benefits of credit over 
those six weeks without having to go into debt,” he said.

The financial experts who spoke with SFGATE were less than thrilled by 
Khoja’s characterization of point-of-sale loans. 

“That is bonkers,” Todd Phillips, the director of financial regulation at 
the Center for American Progress, told SFGATE. “Like, these guys are 
extending credit … these people are lenders. That is what they are.”

In the past two years, multiple states sided with Phillips, fining "buy 
now, pay later" services millions for operating without a lenders license. 
Both Afterpay and Sezzle were hit with fines by the state of California 
for failing to do so.

“They are loans, and they should be regulated by someone like us, under a 
law that has more protections for consumers," Adam Wright with the 
California Department of Financial Protection and Innovation told Pew.

Torres, meanwhile, said that calling buy now, pay later a budgeting tool 
was “disingenuous.” 

“Assuming that every consumer is using this product, this type of 
financing, in order to budget is assuming a lot,” she said. “Don't claim 
to be something that you're not.”

Regulation is (probably) on its way 
Each service has its own sales pitch on what differentiates it from other 
forms of debt: Affirm prides itself on not giving late fees to customers 
but may charge up to 30% APR on larger loans, while Afterpay offers zero-
percent interest on every purchase, assuming that the user can pay on 
time. It can be easy to pile on debt — particularly when someone is using 
multiple services, each one with different repayment terms, and without a 
streamlined dashboard totaling the debt a user owes between the various 
services.

Despite the friendly terms for people who can afford to pay, those who 
miss payments can find themselves in major trouble. These services vary in 
how they deal with missed payments; some charge late fees, while others 
add interest.

Affirm lets users temporarily defer payments if needed, their 
representatives confirmed, but after 120 days, will send their “charged-
off loans” to collections agencies. Afterpay says that it will wait 30 
days “before initiating any arbitration or court proceeding” on an unpaid 
plan.

There’s also variability in how these loans are reported to credit 
bureaus, which is especially important for younger borrowers, who are 
still building their credit histories. While an increasing number of 
lenders are reporting missed payments to credit bureaus, few are reporting 
successful repayment histories. That means those loans won’t help people 
improve their credit the way repaying a credit card on time would.


“Credit has been made available to consumers very quickly and on a very 
large and international scale, and without the really proper and 
appropriate consumer protections in place,” Torres told SFGATE. “There's a 
lot of concern that consumers could be amassing large amounts of debt at a 
very quick pace without having a clear understanding of what the terms 
are.”

Multiple countries have begun looking into the services in the past six 
months, including the U.K. and the U.S. In late December, America’s 
Consumer Finance Protection Bureau (CFPB) opened an inquiry into these 
companies in late December. In a statement announcing the inquiry, the 
agency expressed concern “about accumulating debt, regulatory arbitrage, 
and data harvesting.”

California Attorney General Rob Bonta signed a letter earlier this year in 
support of the CFPB increasing regulations around point-of-sale loans.

“While we encourage access to safe and affordable credit,” the letter 
reads, “we have concerns about new and supposedly innovative financial 
products that promise to disrupt and democratize the industry but push 
consumers into cycles of debt and carry some of the same terms and 
features as other expensive and predatory financial products.”

Credit card companies, car loan services and even payday lenders are all 
required to provide clear, transparent information about their interest 
rates and the total cost of their loans, based on the federal Truth in 
Lending Act, or TILA. The law also requires lenders to provide consumers a 
way to dispute fraudulent charges and shop around for the best, most 
favorable deal. But according to Cross, many point-of-sale lenders are 
exempt from TILA, which only regulates loans with at least five 
installments. Most buy now, pay later services are set up to require four 
payments. 

While Affirm states in marketing material that it complies with the Truth 
In Lending Act for all of its products, no agency actually has the 
authority to enforce that on any pay-in-four loans.

Paying for gas with buy now, pay later
These services may have got their explosive start in large part thanks to 
fast fashion and other needless consumerism, but they’re increasingly 
being used for day-to-day purchases — especially as inflation skyrockets. 
Within the past year, Amazon and Target both recently partnered with buy 
now, pay later services — while Walmart got rid of its layaway program 
entirely in favor of Affirm. And lately, buy now, pay later companies have 
begun expanding into the territory of other debt services, launching 
“virtual” cards that can be used at stores that don’t directly partner 
with point-of-sale companies.

While these services may be a responsible alternative to credit card debt 
for a good chunk of consumers, it seems increasingly likely that, without 
regulations, this kind of debt will burden the most financially 
vulnerable, just as credit cards, payday loans and layaway have in the 
past. In 2021, Klarna launched a “Fill up now. Pay later” program with 
Chevron and Texaco gas stations, which gained media attention earlier this 
year; a recent Ipsos poll, funded by Afterpay, found that respondents were 
interested in using buy now, pay later for dental work, car repairs and 
even rent. Fifty-six percent of those surveyed were interested in point-
of-sale loans for medical bills, which more than a quarter of Americans 
are struggling to pay.


Fountain, the TikTok influencer who has posted about her concerns with 
point-of-sale loans, said she’s received many heartbreaking comments from 
users who have had to use buy now, pay later out of necessity.

“You have people that are kind of like, ‘Yeah, I hate using buy now, pay 
later systems, but I had to find some way of getting groceries,’” she 
said. “I'm like, whoa, whoa, don't feel ashamed that you have to use a buy 
now, pay later system for groceries.”

Ultimately, Torres sees this new era of buy now, pay later loans as an 
indictment of America’s economic system at large. 

“What does that say of the overall financial health of our society?” she 
asked. “Why are we leaving people to have to finance things like gas with 
a buy now, pay later product?”

Editor's note: This story was edited at May 4, 9:40 a.m., to clarify which 
companies have been fined by California for operating without a lenders 
license. This story was also updated at May 5, 2:10 p.m., to further 
clarify individual company practices.


https://www.sfgate.com/news/article/influencers-lead-Gen-Z-into-debt-
17142294.php