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Shopping With Buy Now, Pay Later Is Easy. Getting a Refund Is Harder.

Shopping With Buy Now, Pay Later Is Easy. Getting a Refund Is Harder. #Shopping #Buy #Pay #Easy #Refund #Harder Welcome to Lopoid

Hannah Renno doesn’t usually take on debt when she shops. But the two-year, interest-free installment loan from

Affirm Holdings Inc.

AFRM 12.40%

for a Peloton treadmill seemed too good to pass up.

She paid off the nearly $5,000 loan early. Then Peloton recalled her treadmill, sending her on a monthslong quest to get a refund.

Making purchases with buy now, pay later companies is easy. Getting money back after a return or recall can take months—if it happens at all. Refund-seekers say confused customer-service representatives often blame the merchants for the delay. Merchants, customers say, blame the buy now, pay later companies. Refunds are on the way, customers say they are told, but they sometimes don’t materialize. 

Buy now, pay later companies all work a little differently, and so their refund processes can vary. In general, the customer asks the merchant for a refund, and the merchant initiates the process. The merchant is typically responsible for getting the refund to the buy now, pay later company, which sends the payment to the customer. But things can get messy in the back-and-forth, stalling the refund on its journey to the customer.

Complaints abound on social media. The Consumer Financial Protection Bureau is looking into the refund delays as part of a broader review of buy now, pay later companies, according to people familiar with the matter. Some customers say they only got their money back after tagging the companies in a tweet or contacting their chief executives.

Hannah Renno

Photo:

Silas Renno

Dr. Renno called, emailed and messaged Affirm multiple times before tweeting at

Max Levchin,

the company’s CEO, in April. “I was getting nowhere with phone calls,” said the pediatrician, who lives in Little Rock, Ark. 

Mr. Levchin responded to her and other customers with similar complaints: “Look folks, we are absolutely trying to help. Sometimes these things take a few days to track down, sometimes even a little longer, even when I get involved.” 

Dr. Renno’s check arrived in the mail a few days later, about four months after Peloton picked up the recalled treadmill. “I think we’ll do our best to avoid them at all costs,” she said of buy now, pay later plans.

“We do our best to support all Affirm consumers throughout their purchasing journey and to assist with return and refund issues as they arise,” a spokesman said. 

“We didn’t live up to our member’s expectations in this instance, and we’re continually working with our partners to ensure our community is supported at every touchpoint,” a

Peloton Interactive Inc.

spokesman said. 

Buy now, pay later companies can hardly afford to anger customers right now. Installment plans surged in popularity in recent years, and big retailers rushed to add the payment option at checkout to boost sales. 

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But delinquencies are rising, and the companies are facing higher borrowing costs as the Federal Reserve raises interest rates to combat inflation. The messy refund process is another growing pain for the companies, which haven’t been tested in a downturn, when savings evaporate and spending slows.

Shoppers used to paying with credit cards don’t have much patience for the buy now, pay later refund process. Credit-card networks have spent decades working out the kinks in their systems to ensure refunds hit customers’ accounts quickly. Today, the process is largely automated. Refunds generally make it back to a customer’s account within days—sometimes less. 

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With buy now, pay later, the return process can require more human intervention, especially if the shopper only returns part of an order or is seeking a partial refund. This can involve figuring out how much of the future payments need to be voided and how much, if any, of the money consumers sent in toward the payment plan need to be refunded. They also need to determine what part of the fee that they charged merchants for facilitating the purchase needs to be refunded. 

Voiding payment plans or refunding customers too early can have serious consequences for the companies. Unlike credit-card issuers, they can’t simply recharge a customer’s account if a refund was made in error. 

Some installment plans are billed every two weeks on a shopper’s credit or debit card, putting the buy now, pay later company in the middle of what is usually an uncomplicated card transaction between a merchant and the card issuer. 

That is what happened when Mia Gomez returned a jacket at the end of February to Madewell. The retailer said she would be refunded through Afterpay. In mid-March, she contacted Afterpay and was told the company hadn’t received the refund from Madewell. 

At the end of March, the merchant asked her if it had already issued a refund onto one of her cards. She said that hadn’t occurred. She tweeted about her experience with both companies.

She said Madewell asked her for a card number and sent the refund there. She said Madewell told her she would then have to pay off the payment plan with Afterpay, which had paused Ms. Gomez’s required payments while the refund was being investigated.

Afterpay “follows the refund policy of its retailers—like all payment providers,” a spokeswoman said. “Once the retailer confirms a return has occurred, the refund will be shown on the customer’s payment plan.”   

“At Madewell, we are committed to providing our customers with the best shopping experience and are working directly with our BNPL partners to improve our process and ensure a smoother returns experience,” a spokesman said. 

Ms. Gomez used to do most of her shopping with Afterpay and said she has since scaled back using the company.

“It was a saga,” she said.

Write to AnnaMaria Andriotis at annamaria.andriotis@wsj.com

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