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Speaker 1: Bloomberg Audio Studios, podcasts, radio news.

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Speaker 2: When Brianna Gordley got to college her freshman year, she

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Speaker 2: wasn't prepared for the winters.

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Speaker 1: Born and raised in Texas, and I went to Kentucky

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Speaker 1: for school, so clearly there's a weather difference there. I

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Speaker 1: needed more pants, a lot more sweatshirts and jackets, But.

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Speaker 2: As a full time student and a part time bartender,

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Speaker 2: Brianna didn't have that much extra cash to spend on

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Speaker 2: new clothes. So when her friend told her about something

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Speaker 2: called buy now, Pay later, she remembers being intrigued. It

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Speaker 2: seemed almost too good to be true. But then Brianna

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Speaker 2: downloaded an app and it confirmed what she'd heard. She

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Speaker 2: could get around one hundred dollars worth of winter clothes

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Speaker 2: from Forever twenty one and pay the bill off over

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Speaker 2: four smaller installments.

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Speaker 1: That made sense to me, like, oh, I can have

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Speaker 1: easily twenty five dollars in the next two weeks to

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Speaker 1: make this one purchase.

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Speaker 2: But that one purchase quickly snowballed.

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Speaker 1: It started from things I needed to just oh, my gosh,

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Speaker 1: I have all this access to buy things I didn't

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Speaker 1: really need but that I thought I wanted.

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Speaker 2: In less than a year. Brianna remembers spending about fifteen

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Speaker 2: hundred dollars on clothes, makeup accessories. Soon to started missing

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Speaker 2: payments and getting hit with late fees. Eventually, debt collectors started.

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Speaker 1: Calling, and that's when I got very scared. It was crippling,

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Speaker 1: definitely crippling anxiety, crippling fear until I was able to

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Speaker 1: come out of it.

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Speaker 2: Brianna is one of a growing number of American shoppers

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Speaker 2: who have made online purchases using services called Buy Now,

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Speaker 2: Pay Later, also known as bnpl They're offered by companies

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Speaker 2: like a firm Klarna and after Pay and the interest

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Speaker 2: free payment plans can be used for just about anything.

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Speaker 3: If you want to go on a trip, Expedia offers

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Speaker 3: a pay and for option. If you want to go

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Speaker 3: on a big shopping spree, there's a chance that it'll

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Speaker 3: be available at any retailer you can imagine. Credit cards

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Speaker 3: are also starting to offer options too.

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Speaker 2: It's Paulina CaCrO, a personal finance reporter at Bloomberg, and

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Speaker 2: she and Paige Smith, a consumer finance reporter, have been

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Speaker 2: digging into the world of buy Now, Pay Later. Paulina

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Speaker 2: and Page say that on top of trouble for individual

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Speaker 2: consumers like Brianna. Concern is growing about just how little

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Speaker 2: we know about this debt. That's because many of those

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Speaker 2: BNPL companies don't share the same data that other types

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Speaker 2: of lenders share.

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Speaker 3: At least one expert at Wells Fargo estimates that there's

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Speaker 3: about forty six billion dollars in phantom debt, and that's

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Speaker 3: just from buy now, Pay Leader, and that's just in

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Speaker 3: the US alone, And there are actually also some other

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Speaker 3: estimates that have projected that globally the buy now Pay

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Speaker 3: Leader industry could be seven hundred billion a year, But

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Speaker 3: again these are just projections.

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Speaker 4: It just is a pretty large blank spot for a

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Speaker 4: number of folks who rely on credit scoring data to

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Speaker 4: be able to make underwriting decisions of their own, and

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Speaker 4: also for economists.

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Speaker 2: And that specter has got economists and financial experts concerned

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Speaker 2: because a lot of other data on consumer spending right

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Speaker 2: now makes it look like lots of Americans are doing fine,

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Speaker 2: but by now pay later debt is largely missing from

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Speaker 2: that picture, and without an understanding of all the debt

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Speaker 2: people hold, it's hard to know how healthy the economy

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Speaker 2: really is.

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Speaker 3: Today.

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Speaker 2: On the show how much Phantom debt could be lurking

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Speaker 2: within the buy now, pay later market and what it

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Speaker 2: means for shoppers, economists, and regulators. I'm Sarah Holder. This

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Speaker 2: is the big take from Bloomberg News. Bloomberg's Paulina Cacero says,

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Speaker 2: not everyone who uses buy now Pay later ends up

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Speaker 2: in trouble, but there are lots of ways things can

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Speaker 2: go wrong.

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Speaker 3: If you're a responsible person who keeps up with everything

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Speaker 3: that you own, you know exactly when things are own,

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Speaker 3: how much you have in your bank account at all times.

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Speaker 3: It's fantastic.

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Speaker 2: For everyone else, it's a slipperysop. Paulina told us that

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Speaker 2: while some serve may advertise zero interest, the devil is

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Speaker 2: often in the details. Yeah.

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Speaker 3: So, a lot of the buy now, pay later services

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Speaker 3: do charge late fees or a percentage of your purchase

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Speaker 3: when you fall behind on payments.

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Speaker 2: This is actually part of the business model for these companies.

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Speaker 2: Late fees are a source of revenue for some of them,

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Speaker 2: and on top of their fees, if your payment was

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Speaker 2: supposed to come from a bank account or debit card,

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Speaker 2: but you don't have enough money in that account to

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Speaker 2: cover the payment, you could face other fees from.

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Speaker 3: Your bank you might get hit with an overdraft fee

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Speaker 3: or a non sufficient fun fee from your bank account,

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Speaker 3: and that's where people start to fall behind. And if

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Speaker 3: you fall behind late enough, these companies can actually turn

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Speaker 3: over your loan to a debt collector and that can

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Speaker 3: impact your credit score.

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Speaker 2: So just how many people are struggling with paying off

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Speaker 2: this kind of debt, well, we don't really know because

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Speaker 2: the companies in the space don't provide data on installment

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Speaker 2: loans that are split into four payments, which is a

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Speaker 2: popular option for consumers.

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Speaker 4: These large and very much still growing by now pay

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Speaker 4: later providers do not furnish their data to both credit

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Speaker 4: bureaus and credit scoring firms. So the big ones that

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Speaker 4: you and I know of, like Fico but also TransUnion experience.

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Speaker 2: The reason they don't share this data well, Page says

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Speaker 2: that depends on who you ask.

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Speaker 4: There's a little bit of a back and forth here

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Speaker 4: between these companies because you have the likes of Klarna

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Speaker 4: and a firm and after pay saying that they don't

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Speaker 4: want to provide this data to these other entities until

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Speaker 4: they know that the consumer's data will be safe and secure,

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Speaker 4: and they also don't want consumers credit scores to be

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Speaker 4: hit if they turn over this data.

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Speaker 2: Basically, some of them are arguing, hey, by not reporting

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Speaker 2: our data, we're actually helping our customers. That's because they

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Speaker 2: claim that the current credit scoring models don't accurately account

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Speaker 2: for these kinds of pay and four plans, and therefore

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Speaker 2: even those who pay on time could still see damage

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Speaker 2: to their credit scores. Pauline, do you buy that argument

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Speaker 2: from companies that this is protecting consumers credit scores?

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Speaker 3: I think the buy now, pay later industries really positioned themselves.

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Speaker 3: It's almost like a financial equalizer for consumers. They're granting

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Speaker 3: credit access for people who have found it hard to

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Speaker 3: access other forms of credit. But if you fall delinquent

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Speaker 3: enough on a loan, and if the company decides to

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Speaker 3: turn over that debt to debt collectors, your credit score

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Speaker 3: can still get hurt. A lot of people think that

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Speaker 3: they can actually build their credit score with on time payments,

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Speaker 3: but because of buy now, pay later, providers aren't furnishing data,

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Speaker 3: no one can build their score. So there's really only

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Speaker 3: downsides for consumers when it comes to their credit scores.

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Speaker 2: As for the entities that buy now, pay later, firms

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Speaker 2: would share their data with Page says they say they're

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Speaker 2: ready to receive it.

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Speaker 4: We have folks like Fico and Experience and other credit

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Speaker 4: bureaus saying they're ready to accept this data and willing

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Speaker 4: to accept this data.

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Speaker 3: It's been a bit of a blame game. People are

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Speaker 3: pointing fingers about why this hasn't happened.

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Speaker 2: But earlier this year there was some movement in the

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Speaker 2: stalemate after a big report on the industry from the

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Speaker 2: Consumer Finance Protection Bureau came out. Apple pay Later, Apple's

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Speaker 2: version of Buy now Pay Later, did decide to share

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Speaker 2: their data for these transactions with the credit bureau Equifax.

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Speaker 3: When Apple decided to furnish data, they became the first

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Speaker 3: big buy now Pay Later provider to do so, and

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Speaker 3: it kind of threw cold water and the reasons that

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Speaker 3: a lot of the other buy now, Pay Later pioneers

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Speaker 3: and titans have brought up as a reason for why

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Speaker 3: they're not furnishing data.

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Speaker 2: But with so many companies and retailers offering buy now,

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Speaker 2: Pay later and most of them not sharing their data,

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Speaker 2: that still means we have a gaping hole in what

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Speaker 2: we actually know about this industry, and that could be

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Speaker 2: a problem for other lenders because typically when you want

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Speaker 2: to get a credit card or other types of loans,

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Speaker 2: the provider will look at your entire financial picture to

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Speaker 2: see what you owe to whom and how good you've

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Speaker 2: been about paying them back. They use this data to

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Speaker 2: decide how much credit to give you and under what terms.

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Speaker 2: But without knowing the true extent of BNPL debt, financial

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Speaker 2: institutions are making lending decisions with incomplete information.

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Speaker 3: Because none of these buy now payladter providers furnished data,

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Speaker 3: no one knows when a consumer is overextended and whether

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Speaker 3: or not they can afford to take out more money.

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Speaker 2: And Page and Paulina say that's not just a problem

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Speaker 2: for lenders, it also matters to economists and anyone who's

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Speaker 2: trying to take the temperature of the entire economy. One

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Speaker 2: analyst that Page and Paulina spoke to even put a

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Speaker 2: name to the estimated billions and buy now pay later

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Speaker 2: debt we can't see. They called it phantom debt.

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Speaker 4: This phantom debt is out there, and we just don't

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Speaker 4: know how much it is, and how large it is,

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Speaker 4: and how much it weighs on sort of the average

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Speaker 4: hoshold income on any given month.

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Speaker 3: We should also note that there's other debt that economists

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Speaker 3: can't really see, including from payday lenders, car title loans,

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Speaker 3: and some other really high interest loans. So, you know,

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Speaker 3: a lot of researchers just don't have a full picture

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Speaker 3: of the debt obligations that Americans have.

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Speaker 2: And Page and Paulina say, that's especially concerning at this

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Speaker 2: moment where we're seeing consumers fall behind on other types

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Speaker 2: of credit.

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Speaker 3: Consumers are starting to fall behind credit cards, auto loans,

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Speaker 3: mortgage payments, etc. So people are concerned that it's you know,

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Speaker 3: hiding consumer distress.

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Speaker 4: And the economy.

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Speaker 2: Page and Paulina and our other colleagues here at Bloomberg

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Speaker 2: really wanted to know more about this glaring buy now,

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Speaker 2: Pay later blind spot. So Bloomberg commissioned a poll. One

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Speaker 2: thing it revealed, people aren't just using buy now Pay

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Speaker 2: Later for big ticket items. Almost half the people they

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Speaker 2: surveyed are using it or have considered using it for essentials.

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Speaker 2: What that means for Wall Street. After the break, Bloomberg

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Speaker 2: partnered with the Harris Pole to put together a survey

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Speaker 2: about how Americans use buy now, Pay later loans and

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Speaker 2: how they're thinking about them. And Paulina Cacero a personal

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Speaker 2: finance reporter at Bloomberg says it offers important clues about

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Speaker 2: how many people are struggling with this kind of debt.

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Speaker 3: So from this survey poll, we found that about forty

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Speaker 3: three percent of those who do owe money to buy now,

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Speaker 3: Pay later services reported falling behind on payments in some capacity,

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Speaker 3: and twenty eight percent said they were delinquent on other

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Speaker 3: debt like credit cards mortgage payments because of what they

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Speaker 3: were spending on buy now, Pay Later.

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Speaker 2: Paulina says that given how sticky inflation has been, many

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Speaker 2: people's budgets are tighter and they're starting to turn to

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Speaker 2: buy now, pay later to fill in the gaps.

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Speaker 3: We are at the point where more and more people

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Speaker 3: are starting to use them fornessities that they need. And

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Speaker 3: you know, two years into a period of really high inflation,

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Speaker 3: where the cost of everything from food, gas, groceries, rent

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Speaker 3: has gone up so much, we are starting to see

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Speaker 3: that people are using it to afford things that they need.

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Speaker 2: And the fact that people are using the NPL for

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Speaker 2: daily essentials is really important. If you look at the

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Speaker 2: story of the US economy today, lots of key economic

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Speaker 2: data shows that consumer spending continues to be higher than

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Speaker 2: was expected. It seems like people feel very comfortable spending

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Speaker 2: right now, but the buy now, pay later debt complicates

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Speaker 2: that picture.

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Speaker 3: It seems like people have continued on this what we

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Speaker 3: called a COVID nineteen revenge spending spree, and a lot

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Speaker 3: of that data, you know, has encouraged economists and other

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Speaker 3: financial institutions to say, hey, the American consumer is doing fine.

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Speaker 3: We need to keep interest.

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Speaker 2: Rates higher for longer.

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Speaker 3: However, because we're starting to see consumers start to fall

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Speaker 3: behind on every other credit product. We know that the

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Speaker 3: Americans are holding onto one trillion dollars worth of credit

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Speaker 3: card balances. The fact that there's more buy now, pay

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Speaker 3: later loans on top of that is kind of daunting.

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Speaker 2: One way to shed light on what's actually going on

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Speaker 2: with buy now, pay later debt would be regulation. I

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Speaker 2: asked Paulina and her colleague Page Smith, a consumer finance reporter,

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Speaker 2: if any new regulations are coming for this industry.

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Speaker 3: So basically, the CFPB, you know, they did this big

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Speaker 3: groundbreaking report on the buy now, pay later industry two

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Speaker 3: years ago, and since then they have said that they

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Speaker 3: would issue guidance on whether the buy now and pay

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Speaker 3: later industry should be regulated like other forms of credit.

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Speaker 3: You know, nothing clear has really come through so far.

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Speaker 4: And then another regulator, the controller of the currency, essentially

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Speaker 4: warned banks about entering this space and kind of caution

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Speaker 4: them of some of the risks associated with buy now,

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Speaker 4: pay later lending because it is fundamentally different from traditional

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Speaker 4: lending in some ways, but in other ways it is

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Speaker 4: quite similar.

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Speaker 2: The issue has also gotten the attention of Congress. Senator

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Speaker 2: Shared Brown led a hearing about the risks of buy now,

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Speaker 2: pay later in twenty twenty two.

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Speaker 5: Companies tell us these new products are innovative, they're easy

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Speaker 5: to use, they'll give people more options, But so often

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Speaker 5: innovation is just a new way for companies to make

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Speaker 5: money while trapping people in debt.

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Speaker 2: And one person who was called to testify was Brionna Gordley,

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Speaker 2: who racked up all that buy now, pay later debt.

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Speaker 1: In college production and thank you Kimney members for this

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Speaker 1: opportunity to provide a virtual testimony on my experience with

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Speaker 1: buy now, pay later products.

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Speaker 2: Brianna, you testified about your experience in twenty twenty two.

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Speaker 2: What did you hope to communicate with lawmakers there?

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Speaker 1: Yeah, I was very scared to do it. But what

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Speaker 1: I really wanted people to see is that this can't

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Speaker 1: happen to anyone. It's funny how I was using these

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Speaker 1: apps and I don't. I don't think I ever knew

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Speaker 1: what they really were. And if I had known what

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Speaker 1: I have still agreed to use what actually can be

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Speaker 1: a complicated product to someone who's just eighteen or nineteen.

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Speaker 2: And if there had been more regulation on this industry

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Speaker 2: at the time when you first gotten to BNPL debt,

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Speaker 2: how could that have changed your experience? Have you thought

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Speaker 2: about that?

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Speaker 3: I do.

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Speaker 1: I think things would have been more clear. There are

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Speaker 1: times when I thought is this a credit card? Or

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Speaker 1: the times where I thought are they checking my credit?

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Speaker 1: I just had no idea what I was even doing,

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Speaker 1: and I was still doing it. And so there are

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Speaker 1: times when I wonder if would regulation helped, would it

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Speaker 1: have made these products their business model just a little

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Speaker 1: bit more clear for me to understand. So I think

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Speaker 1: about it a lot, and I think it would have

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Speaker 1: been extremely helpful.

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Speaker 2: Today. Brianna works in consumer advocacy at an organization called

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Speaker 2: Texas Appleseed. She actually advises people on financial products, including

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Speaker 2: by Now Pay Later.

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Speaker 1: I think a lot of these products can be very

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Speaker 1: helpful and give people away to access things that they

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Speaker 1: wouldn't normally be able to. And then I say, but

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Speaker 1: you have to be careful. You have to know what

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Speaker 1: you're getting yourself into, and let me help you with that.

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Speaker 1: You need to really read the terms and let me

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Speaker 1: read them with you. And I'm equal sad and angry

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Speaker 1: and frustrated and just wondering how it's gotten here and

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Speaker 1: how regulation may or may not help.

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Speaker 2: Thanks for listening to The Big Take podcast from Bloomberg News.

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Speaker 2: I'm Sarah Holder. This episode was produced by Jessica Beck.

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Speaker 2: It was edited by Caitlin Kenney and Craig Giamona. It

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Speaker 2: was mixed by Veronica Rodriguez. It was fact checked by

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Speaker 2: Adrianna Tapia. Naomi Shaven and Kim Gettelson are our senior producers.

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Speaker 2: Our senior editor is Elizabeth Ponso. Nicole beamsterbor is our

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Speaker 2: executive producer. Sage Bauman is Bloomberg's head of Podcasts. If

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Speaker 2: you liked this episode, make sure to subscribe and review

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Speaker 2: The Big Take wherever you listen to podcasts. It helps

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Speaker 2: people find the show. We'll be back tomorrow, don't you

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