The Attorneys general of seven US states have launched an inquiry into the buy now, pay later sector, citing concerns that the products may expose Americans to unclear terms, hidden fees, and debt traps.
The offices of the Attorneys General of California, Colorado, Connecticut, Illinois, Minnesota, North Carolina and Wisconsin sent letters to the six largest BNPL providers in the US - Affirm, Afterpay, Klarna, PayPal, Sezzle, and Zip - seeking detailed information regarding their pricing and repayment structures, consumer contracts, user agreements, and disclosures.
The seven states - all Democrat-run - made the move after the Consumer Financial Protection Bureau under the Trump Administration dropped its plans to make providers adhere to the same consumer protections as other lenders.
The CFPB rule would have meant that BNPL providers would have needed to give consumers some key legal protections and rights that apply to conventional credit cards. These include a right to dispute charges and demand a refund from the lender after returning a product purchased with a buy now, pay later loan.
California Attorney General Rob Bonta says: “Buy now, pay later promises all you can want today without needing all the money upfront. This holiday shopping season, in the face of rising prices and other economic challenges, consumers may be tempted to turn to these loans to afford gifts, without meaningful underwriting, or fully understanding that they can turn into serious debt and mounting fees.”
Connecticut Attorney General William Tong adds: "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.”