In reversal, California gives license to point-of-sale lender

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The fintech Sezzle has finally received its point-of-sale lending license in California after agreeing to refund consumers in the state and pay a penalty for previously making illegal loans there, the California Department of Business Oversight said Thursday.

Sezzle will refund fees collected when previously financing purchases in the state without a license, totaling $282,000, according to a settlement with the agency. The Minneapolis company will pay a $28,200 fine.

The agreement comes after the California DBO had denied a license to Sezzle in December, a move that effectively barred the upstart company from operating in the country’s largest state.

Sezzle previously argued that it had not been offering loans in California but was instead purchasing “credit sale contracts” from its approved merchants as state law permits third parties to do in some cases, according to the Dec. 30 decision from California’s Commissioner of Business Oversight Manuel P. Alvarez.

In a statement announcing the approval of its license, Sezzle said it had been operating under a “retail installment structure whereby retailers initiated the installment loan and transferred the loan to Sezzle to service.”

The license approval will allow Sezzle to transition to a “direct lending structure,” the company said in the announcement.

Sezzle, started in 2016, finances customer purchase at the point of sale in partnership with merchants. The financing is often paid back in installments without interest or fees as long as the customer pays on time. Sezzle collects fees from participating merchants, who are not allowed under their agreement to charge a higher credit price.

The California DBO insisted in a statement Thursday that Sezzle’s products were considered loans under state law but were structured to avoid consumer protections. The Dec. 30 decision was a signal to the rest of the booming point-of-sale lending market that the agency would eye their offers carefully before approving them in the state.

“The DBO continues to investigate other companies in the point-of-sale lending industry,” the agency said in its statement Thursday. “Issuance of a lending license to such a company does not mean the Department has concluded that company’s prior activities or products, or the prior activities or products of an affiliate of that company, complied with the law.”

Shares of Sezzle spiked as much as 21% in after-hours trading Thursday, briefly reaching the price shares were trading at before the initial denial of its lending license application. The shares opened at $2.01 Friday morning.

“We are thankful to the California Department of Business Oversight for their prompt and open approach to resolving this matter in such a timely and professional manner,” Sezzle CEO Charlie Youakim said in a statement Thursday. “This is a great result for Sezzle and provides the platform for us to continue our planned growth strategy in the state of California.”

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