(Bloomberg) -- PayPal Holdings Inc. will stop charging late fees when customers fall behind on a product that allows users to split purchases into smaller payments.
The policy change applies to PayPal’s buy-now, pay-later option in the U.S., France and the U.K. starting Oct. 1, PayPal said in a statement Wednesday. In the U.S., late fees vary by state but can be as high as $10.
Buy-now, pay-later options -- also offered by firms including Afterpay, Klarna and Affirm -- have exploded in popularity in the U.S. in recent months, especially among younger consumers. Since PayPal began offering it last year, customers have used the service to make $3.5 billion in purchases.
“We know that eliminating late fees delivers an even better buy-now, pay-later experience,” Greg Lisiewski, vice president of global pay-later products at PayPal, said in the statement. “This change is closely coupled with PayPal’s mission and s as we seek to remove hurdles that provide financial services to customers of all types.”
The U.S. Consumer Financial Protection Bureau last month warned consumers about late fees tied to buy-now, pay-later services, as well as the risks such products can create when consumers overextend their finances.
Many buy-now, pay-later options don’t charge interest, and instead make money from late fees as well as by collecting a small amount from merchants each time a consumer uses the product. PayPal doesn’t charge merchants any extra fees beyond the ones that already apply to its broader payments service.
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