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US banking regulator warns on risks of 'buy now, pay later'

FILE PHOTO: People shop in a grocery store in Manhattan, New York City

(Reuters) - A top U.S. banking regulator on Wednesday warned banks to manage the risks to consumers posed by increasingly popular "buy now, pay later" financing for retail spending, saying the service creates pitfalls for retail shoppers.

THE TAKE

As the year-end holidays approach, the statement from the U.S. Office of the Comptroller of the Currency, an independent arm of the U.S. Treasury, was the latest sign that federal regulators are scrutinizing the increasingly popular form of consumer credit.

The loans allow borrowers to pay off a purchase in four or fewer interest-free installments but regulators warn they can lead to trouble, leaving unsuspecting borrowers overextended.

KEY QUOTE

"As the 'buy now, pay later' market grows and we enter the holiday shopping season, the guidance confirms our expectation that OCC-supervised institutions offering these products do so in a responsible manner," Michael Hsu, acting Comptroller of the Currency, said in a statement.

CONTEXT

Consumers with fewer dollars to spend are increasingly turning to "buy now, pay later" loans, with a record number borrowing nearly $1 billion this way during the annual Cyber Monday shopping spree alone, analysts say. The surge in business has boosted shares in "buy now, pay later" company Affirm.

(Reporting by Douglas Gillison; Editing by Will Dunham)

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