Americans are increasingly falling behind on their credit card bills and car loans as years of high inflation take their toll.

This spike in delinquencies is raising fears about the Buy Now, Pay Later boom. Critics worry these increasingly popular short-term lenders are allowing shoppers to pile on even more debt — at exactly the wrong time.

Yet Affirm, one of the leading BNPL companies, has revealed a surprising trend: Its delinquencies are stable even as signs of financial stress flash elsewhere.

“We’re not seeing evidence of increased delinquencies in our business. But that’s not an accident,” Max Levchin, Affirm’s CEO and a co-founder of PayPal, told CNN in a recent interview.

Levchin credits a willingness to say a two-letter word, one that’s not exactly associated with the surging BNPL industry, N-O.

“As unpleasant as it is for both parties – we hate saying no, and consumers don’t like hearing no, but we will decline a loan application if we think the consumer cannot pay us back,” the Affirm CEO said. “It’s not that we are better at knowing something secret about consumers. It’s that we are honest when we tell them, ‘Hey, we don’t think you should borrow right now.’”

Affirm started saying “no” more often in the spring of 2022. That’s when Levchin started observing signs of “financial stress” as inflation surged and gas prices approached record highs.

“That stress has never gone away,” he said. “We see no reason to become even more conservative, but we don’t see any reason to relax.”

‘Biting off more than they can chew’

Of course, Affirm is not exactly turning down customers left and right. It’s still growing rapidly.

Gross merchandise volume surged 32% last quarter to $7.5 billion. Active customers increased by 16% to 17.1 million. Transactions per customer increased, too.

Instead of saying no, Levchin said Affirm will often say maybe.

“The cool thing is we can still say yes a lot of times,” he said. “Say you’re asking to borrow to buy an $800 TV and we really don’t think it’s healthy for you, financially…We can say, ‘That’s too much now. But we’ll happily lend you $600, if you have $200 saved up and want to make a down payment.”

Levchin said that while Affirm’s approval rate has largely stayed the same, the structure of those approvals has changed to require more down payments when shoppers are “biting off more than they can chew.”

‘Financially fragile’ borrowers

Still, some BNPL users are clearly biting off more than they can chew.

The New York Fed recently released a report finding that “financially fragile” borrowers are “disproportionately likely” to use BNPL platforms at higher frequencies. The report said these borrowers “have embraced BNPL as a regular payment option.”

BNPL options have become almost ubiquitous, especially for online shoppers.

Affirm is not only available at retail giants like Amazon, Target and Walmart, it’s also available to finance the purchase of concert tickets at SeatGeek, cruises at Royal Caribbean or flights at American Airlines.

Asked if there is a risk that BNPL platforms are becoming too easy to use, enabling people to spend more than they can afford, Levchin pointed the finger at credit cards instead.

“The single best consumer interface for payments ever invented is the credit card. You swipe. You don’t have to think whether you can afford it or not. You have no idea when you’re going to be out of debt. You don’t know how many fees you’re going to pay,” he said. “It doesn’t matter. Put it all on plastic and just grab the thing and go. And yet as convenient as it is, it’s singularly the least responsible way of buying things on credit.”

CEO: Younger Americans are ‘more responsible’

Americans are sitting on a record-high $1.1 trillion of credit card debt, according to NY Fed data released earlier this month. Delinquency rates on credit cards have climbed to the highest level since 2011 — a trend that has been especially pronounced among younger and low-income households.

And yet Levchin argues BNPL is increasingly popular because younger Americans, scarred by the 2008 financial crisis, are skeptical of banks and credit cards.

“There’s really strong demand for Buy Now, Pay Later because young Americans tend to have a more responsible point of view of what is good and what is bad for them in terms of borrowing,” he said.

Looking ahead, Affirm is forecasting “very strong” growth — powered by the willingness of Americans to keep shopping.

However, there are some shifts in what consumers are spending on right now.

Many Americans continue to splurge on travel and experiences like concerts and sporting events. But Affirm is also seeing a “re-acceleration” into Covid-era categories like home theaters, offices, televisions and other electronics.

“I feel pretty good about consumer demand,” Levchin said.

Election risks loom

And that optimism bodes well for the broader US economy, which remains very much reliant on consumer spending.

Of course, there are risks out there that could disrupt the willingness of shoppers to keep spending.

Levchin listed a series of X-factors — including everything from turmoil overseas and interest rate policy from the Federal Reserve to the upcoming US election this fall.

Asked about the risk of another contested election, Levchin said his business tends to do better when there is more certainty, not less.

“I am a big fan of orderly transitions of power, properly-held elections and outcomes that are not contested by anyone,” he said.

Still, Levchin noted that Affirm was successful during Covid, “probably the most upheaval-ish time of all,” and thrived under both the Biden and Trump administrations.

“Ultimately,” he said, “Americans like to shop.”