‘Buy Now, Pay Later’ Firms Pressed by States for Loan Details

(Bloomberg) — The offices of seven state Democratic attorneys general asked providers of Buy Now, Pay Later services for details about the cost and structures of their installment loans, as well as consumers’ ability to repay them.

Klarna Group Plc, Affirm Holdings Inc. and Afterpay Ltd. were among the six companies that were sent letters on Cyber Monday from the group that included Connecticut and North Carolina. The companies were asked to provide detailed information about their loan products and customer interactions within 30 days.

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In a statement announcing the letter, Connecticut Attorney General William Tong expressed concern that heavy marketing of such services was luring consumers into costly and onerous arrangements. PayPal Holdings Inc., Sezzle Inc. and Zip Co. Ltd. also received letters. An official in Tong’s office along with officials from California, Colorado, Illinois, Minnesota and Wisconsin signed onto the letters.

“Buy now, pay later may appear to be a convenient way to afford a purchase, especially now during the holiday season, but shoppers need to watch out for debt traps,” Tong said.

A spokesperson for Klarna said it is “committed to protecting consumers.” A spokesperson for Affirm said the company has “long-supported thoughtful regulation and consistent industry standards.”

Representatives for PayPal, Sezzle, Zip and Afterpay didn’t immediately respond to requests for comment.

Tong said the states were responding to pullback in federal regulation. Earlier this year, the Consumer Financial Protection Bureau revoked an interpretive rule stating that many Buy Now, Pay Later services were subject to the same rules as credit cards. Under the Biden administration, the bureau had begun to expand its oversight of such firms.

“As Trump rescinds critical protections for buy-now-pay-later consumers, it’s up to states now to ensure shoppers know what they are getting into, and to ensure these companies are held accountable,” Tong said.

The changes in federal oversight coincides with an explosion in installment loans. Buy Now, Pay Later transactions are expected to reach $687 billion in volume by 2028, compared to $334 billion last year, according to projections by Juniper Research.

The state officials asked the companies to describe how they analyze delinquencies and borrowers’ ability to repay, as well as their procedures for tracking and resolving consumers’ disputes. The state officials also inquired about the companies’ compliance with the federal Truth in Lending Act, which specifies rules for open-end credit such as credit cards and home-equity lines.