PayPal will stop charging late fees on buy-now, pay-later plans

[SAN JOSE] PayPal Holdings will stop charging late fees when customers fall behind on a product that allows users to split purchases into smaller payments.

The policy change applies to PayPal's buy-now, pay-later option in the US, France and the UK starting Oct 1, PayPal said in a statement on Wednesday. In the US, late fees vary by state but can be as high as US$10.

Buy-now, pay-later options - also offered by firms including Afterpay, Klarna and Affirm - have exploded in popularity in the US in recent months, especially among younger consumers. Since PayPal began offering it last year, customers have used the service to make US$3.5 billion in purchases.

"We know that eliminating late fees delivers an even better buy-now, pay-later experience," Greg Lisiewski, vice president of global pay-later products at PayPal, said in the statement.

"This change is closely coupled with PayPal's mission and values as we seek to remove hurdles that provide financial services to customers of all types."

The US Consumer Financial Protection Bureau last month warned consumers about late fees tied to buy-now, pay-later services, as well as the risks such products can create when consumers overextend their finances.

Many buy-now, pay-later options don't charge interest, and instead make money from late fees as well as by collecting a small amount from merchants each time a consumer uses the product. PayPal doesn't charge merchants any extra fees beyond the ones that already apply to its broader payments service.

BLOOMBERG