Americans May Be Taking on Too Much Pay-Later ‘Phantom Debt’
Summary
“The more I dig into it, the more concerned I am,” said Tim Quinlan, a Wells Fargo economist who recently published a report that described pay-later loans as “phantom debt.” Traditional measures of consumer credit indicate that U.S. household finances overall are relatively healthy. In a paper published last year, Mr. deHaan and three other scholars found that within a month of first using pay-later loans, people became more likely to experience overdrafts and to start accruing credit card late fees. Ms. Gordley, who testified about her experience last year in a listening session hosted by the Senate, now works on consumer finance issues for Texas Appleseed, a progressive policy organization. “If we’re going to create these products and build out these systems for people, we also just have to have some checks and balances in place.” The Truth in Lending Act of 1968 requires credit card companies and other lenders to disclose interest rates and fees and provides borrowers with various protections, including the ability to dispute charges. Marco di Maggio, a Harvard Business School professor who has studied pay-later products, said when times were tough more people would use such loans for smaller expenses and get into trouble.