According to PYMNTS.com, a seven-state coalition led by Connecticut Attorney General William Tong has requested detailed information from Affirm, Afterpay, Klarna, PayPal, Sezzle, and Zip. The letters, sent on March 6, 2024, demand data on pricing, underwriting, and servicing practices dating back to January 2023. The companies have 30 days to provide consumer contracts, user agreements, and internal analyses on delinquencies and disputes. This move sharpens state-level scrutiny as federal oversight of BNPL recedes, raising the prospect of a fragmented regulatory landscape. The coalition is specifically probing whether lenders are assessing repayment capacity and offering proper dispute protections. Tens of millions of consumers now use these nearly ubiquitous loans, according to the officials.
States Step In Where Feds Step Back
Here’s the thing: the timing here is everything. The Consumer Financial Protection Bureau (CFPB) had started to flex its muscles on BNPL, but that momentum has stalled. Their interpretive rule that would have treated pay-in-four loans like credit cards? Basically, it’s been rescinded. So now you’ve got a regulatory vacuum, and states like Connecticut aren’t waiting around. They’re launching their own probes, which means BNPL companies could soon be answering to 50 different potential sheriffs instead of one federal marshal. That’s a compliance nightmare waiting to happen.
What They’re Really Looking For
Look, the AGs aren’t just asking for marketing brochures. They want the gritty internal data: default rates, dispute volumes, response times. They’re asking the fundamental question these “frictionless” lenders hate: “How do you *know* someone can pay this back?” The letters hint that if the companies can’t demonstrate sound ability-to-repay checks, enforcement actions are on the table. And let’s be honest, that’s the core tension of BNPL. Is it a helpful budgeting tool, or a slickly packaged debt trap that doesn’t do the hard work of traditional underwriting? The states seem to be leaning toward the latter view.
The Stakeholder Ripple Effect
This isn’t just a problem for Affirm and Klarna. The impact ripples out. For users, this scrutiny could be a double-edged sword. Tighter underwriting might protect some from over-spending, but it could also lock others out of a service they use responsibly. For the bank partners that back these loans, their risk models might need a serious rethink. And for merchants? They love the conversion lift BNPL provides, but if the checkout option comes with a heap of new regulatory baggage or consumer lawsuits, that love affair might cool. Suddenly, that seamless integration isn’t so simple.
A New Era of Scrutiny
So what’s next? We’re probably looking at the opening act of a long, messy drama. The BNPL industry has enjoyed a “move fast and break things” phase, but that’s over. The states have put them on notice. Even if the federal government stays on the sidelines, coordinated action from a group of state AGs has serious teeth. They can levy fines, force changes to business practices, and shape the market through enforcement. The next 30 days, and the data these companies cough up, will set the tone. Will they show robust controls, or will the numbers reveal the cracks the AGs suspect are there? Either way, the free ride is officially done.
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