The debt economy is eating everyone alive

In a country like the United States, where the risk of being burdened by excessive medical debt is ever-present, the dangers of a new credit product should not be underestimated.

Translated from https://www.les-crises.fr/l-economie-de-la-dette-devore-tout-le-monde-vivant/

For people unable to afford homeownership, the “buy now, pay later” principle has become a way to finance their basic expenses, with future income that may never materialize. Meanwhile, the Trump administration is working to protect lenders.

American consumers are increasingly taking out loans from “buy now, pay later” companies like Klarna to attend concerts, order takeout, and buy groceries, and a growing number are failing to repay these loans on time. (Gabby Jones/Bloomberg via Getty Images)

Last month, Billboard reported that about 60% of attendees at the Coachella music festival financed their tickets with a “buy now, pay later” payment plan. These programs function like short-term loans, allowing consumers to pay for their purchases in installments, often at low or no interest. While this figure is concerning, it is not alarming: in theory, BNPL offers flexible access to short-term credit, and as long as each installment is made on time, no additional costs are incurred.

But this warning is proving more than hypothetical, as more and more US consumers are defaulting on their loans. In its first-quarter earnings report, Klarna, one of the largest BNPL providers, announced a net loss of $99 million, an increase of more than 100% year-over-year. Klarna also saw a 17% increase in customer credit losses year-over-year, meaning it generated more revenue from late fees than last year, both in absolute terms and as a percentage of total loans. Much of this growth is due to the aggressive expansion of the BNPL sector in the US, exemplified by Klarna's partnership with DoorDash in March and the announcement a few days ago of a partnership between Costco and Affirm for purchases over $500.

In other words, American consumers are increasingly taking out loans to attend concerts, order takeout, and buy groceries, and more and more are failing to repay these loans on time. Survey data shows that Gen Z and Millennial consumers are more likely to use BNPL programs to finance travel expenses, particularly those related to live events. Within these demographics, according to a December 2024 Federal Reserve report, those with lower credit scores and indicators of overall financial well-being are more likely to use BNPL programs. While those with strong financial positions may find BNPL offers a convenient way to spread out payments for a large purchase, such as airline tickets, the sector’s incursion into everyday spending is concerning.

It's not hard to see why these companies need more regulation, not less: Their business model relies on people getting into debt, missing payments, and then paying late fees or interest on their loans to the BNPL provider. By embellishing their services with buzzwords and slick user interfaces, and exploiting regulatory loopholes that exempt them from standard disclosure requirements, these companies prey on people's fear of missing out (FOMO), persuading them to buy Coachella tickets with money they don't actually have. In fact, the 2024 Federal Reserve study references previous research showing that people spend more when BNPL is offered at checkout, which is precisely why sellers partner with BNPL companies. It's a clear example of how these companies exploit cognitive biases to profit from consumer debt. BNPL companies aren't alone in adopting this business model. The entire credit industry has made record profits in recent years by raising interest rates and penalties for consumers. A few years ago, a startup called Yendo unveiled a new credit card secured by car titles, targeting subprime customers who can't qualify for conventional loans. The rapid growth of its user base is a grim reflection of financial insecurity and corporate greed.

The worrying trends surrounding BNPL programs are just a small symptom of a broader economic malaise, exacerbated by the extreme instability of the early months of Donald Trump's second term. The Federal Reserve Bank of New York reported that total household debt rose by the first quarter of 2025 to $18.2 trillion, while overall delinquency rates also increased, with 4.3% of outstanding debt in some stage of default. A significant portion of this is due to the reintroduction of student loans into credit reports, amid a general crackdown on student debt holders, which undoubtedly increases the debt burden on American families. Of course, Trump's tariff policy comes with the promise of a financial burden that falls disproportionately on the millions of Americans who live paycheck to paycheck, and the threat of a recession looms.

The Trump administration has made clear where its loyalties lie: helping the ultra-rich get even richer at the expense of the working class.

In a country like the United States, where the risk of being burdened at any time by excessive medical debt is ever-present, the dangers of a new credit product, even one presented as flexible and interest-free, should not be underestimated. Because BNPL loans are not reported to credit agencies, it is difficult to quantify the true extent of this “shadow debt.” On the one hand, this opacity means that missed BNPL payments will not have an immediate impact on a consumer’s credit score; on the other, it makes it difficult to establish a complete picture of the overall financial health of households. Recently, in response to the increased risk associated with the proliferation of BNPL programs, the UK government announced new regulations aimed at controlling what it has termed the “wild west of unregulated borrowing” of BNPL. These rules set standards to protect consumers from debt traps, bringing BNPL in line with other credit products.

The United States, however, has taken a diametrically opposite approach. Rather than strengthening oversight, the federal government has systematically weakened the Consumer Financial Protection Bureau (CFPB), leaving American consumers more vulnerable to predatory corporate practices. A year ago, the CFPB issued an interpretive rule treating BNPL loans as credit card debt, thereby subjecting them to Regulation Z of the Truth in Lending Act. The Trump administration, however, has resumed a well-worn strategy of refusing to enforce existing regulatory guidance, declaring that it will deprioritize enforcement and intends to repeal it altogether. The message to the fintech industry is unequivocal: the government is on its side, not that of American consumers.

The Trump administration has made clear where its loyalties lie: helping the ultra-wealthy get even richer at the expense of the working class. The expansion of BNPL debt is just another step in the capitalist quest to commodify the human condition as much as possible, with predatory corporations continuing to push the envelope under a government unwilling to rein in their unethical practices. It's not normal to go into debt to order a pizza or attend a concert, yet these companies are seeking to normalize precisely that practice. The fact that so many people are falling for it, especially younger generations, speaks to the widespread economic anxiety and despair that characterizes our crisis-hit economy.

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Source: Jacobin, Casey Wetherbee, 31-05-2025

Casey Wetherbee is a freelance writer based in Buenos Aires, Argentina. He publishes his in-depth essays on his Substack blog, Meanderings.

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