Buy now, pay later scams are on the rise

Buy now, pay later offers are especially popular with young consumers who can pay for purchases in installments even though they have little or no credit history. Guess what, scammers love the repayment plans too.

Merchants report a growing number of cases where thieves have stolen account information to make unauthorized purchases on everything from gaming consoles and big screen televisions to groceries, and carryout orders for pizza.

Among those most at risk? Eighteen to 24-year-olds, according to a recent report from Seon, a fraud prevention firm based in the United Kingdom that works with retailers worldwide.

The research firm noted in a recent survey that more than 61% of consumers ages 18 to 24 reported using the innovative repayment plans known as BNPL — more than any other age group. Those results mesh with other similar surveys.

While Seon's research found that those over age 54 are currently most at risk of being scammed, that's no reason for teens and other heavy users to drop their guard. Parents shouldn't ignore the risks to their children either.

BNPL plans — offered by companies such as PayPal, Klarna, and Afterpay along with the likes of Mastercard and American Express — are similar to traditional retail installment repayment services that have been around for decades. They are essentially instant loans, with a relatively small down payment required.

But with buy now, pay later, shoppers not only get the product immediately either online or at a store, but pay for it in four or five equal installments and often interest free. Some providers don't even require a credit check on users.

For young consumers who don't have credit cards, BNPL programs offer a much easier way to make expensive and inexpensive purchases. Of course, the service also is a recipe for overspending and falling deeper into debt.

Experts say some scammers have been stealing people's identities or taking over their accounts to make unauthorized purchases. Criminal gangs are also reportedly exploiting weaknesses in the application process for BNPL programs, using cyber tactics to slip through undetected and make unauthorized purchases, according to news reports. Many BNPL payment companies don't conduct formal credit checks, instead relying on internal algorithms to determine creditworthiness.

To be sure, BNPL scams have caught the attention of the industry, and some have taken steps to tighten security standards. But, what can young consumers do to protect themselves from cyber thieves?

First, understand that the mechanics behind BNPL programs are different from traditional credit cards — from the way they make decisions on eligibility to the consumer protections on the back end, said Eva Velasquez, president and chief executive of the Identity Theft Resource Center.

“While one may be familiar with, and used to having the ability to dispute a charge on a credit card when resolving issues directly with the merchant or seller fails, this isn't necessarily an option with BNPL,” she said.

The federal Consumer Financial Protection Bureau has been scrutinizing BNPL practices, and warns that the programs in many cases lack the consumer protections that apply to credit cards, such as dispute protections for faulty purchases or scams.

In addition, ask yourself whether you really need BNPL services. Would you be better off budgeting for a big-ticket item, or forgoing it altogether?

Finally, don't underestimate the ability of cyber thieves who always seem to be one step ahead of us. Whether it's a buy now, pay later scam or something else, I believe it's just a matter of time before you're victimized. But, at least there are ways to protect yourself and minimize the damage.