A free Public Service

SCAMS BULLETIN Host Jay White is an inactive attorney in San Mateo County, California.

November 16, 2022

HOW BUY NOW, PAY LATER FRAUD WORKS

Scammers use two main tricks to fool retailers.

They hijack existing BNPL customers’ accounts, either by phishing or buying a person’s confidential information, like Social Security numbers, on the black market.

Or they open accounts by creating fictitious or synthetic identities by combining details of different people into a single persona – “Frankenstein identities” as they’re sometimes called in the financial security world.

Mostly, the crooks use these accounts to make big purchases, sometimes delivered to “drop” addresses. These are usually either vacant properties or belong to people who innocently agree, for payment, to forward received items abroad. Fake addresses and porch piracy at genuine addresses are also used.

Oftentimes, consumer victims don’t know they’ve been caught up in this web until they get a demand for the second staged payment – or they find an item on their doorstep that they didn’t order.

Sometimes, the scammers make a couple of BNPL purchases and pay fully for them. Then they log onto their account and change the payment method to a stolen credit card using details bought on the Dark Web.

In another twist, drug dealers and other gangs are said to be using BNPL to launder cash proceeds of crime.

HOW SHOPPERS CAN BE CAUGHT OUT

In addition to having their accounts hijacked, shoppers can be directly affected by the practices of some BNPL providers.

There’s the risk of taking on too much debt because the providers have no way of knowing how many other deals you signed up for. That’s not a scam, of course, but the result can be the same – a debt collector at your door.

In a September report, the US Consumer Finance Protection Bureau (CFPB) highlighted worries about this and other risks shoppers face when signing up for a buy now, pay later deal.

The report said the amount of information on issues like late fees, customer rights, cost of credit, and autopayments varied across the sector. And it found evidence that some shoppers were assessed multiple late fees for the same overdue payment.

There’s also a looming major issue over data privacy. BNPL lenders are able to build up detailed profiles of shopper preferences and behaviors, which could be sold or used in targeted advertising.

“The practice of harvesting and monetizing consumer data across the payments and lending ecosystems may threaten consumers’ privacy, security, and autonomy,” the CFPB said.

WHAT YOU CAN DO

You likely won’t find out that someone has used your name to sign up for a BNPL deal till you get a demand for the second payment.

Protecting your personal information from hackers, using security software and frequently changing passwords are the best ways of preventing your details from falling into the wrong hands.

In addition, monitor all your financial accounts – banks and credit cards – for suspicious activity.

And if you’re taking out a BNPL loan – yes, it’s still called a loan – make sure you check out the terms and conditions of the deal before signing up.

If you do fall victim to an account hack, contact the BNPL provider and your bank and card companies. You can also lodge a complaint with the CFPB online or by phone at 855-411-CFPB (2372).

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