Seven state AGs demand more information from BNPL lenders

• Key Insight: As the CFPB has walked back its regulation of "Buy Now, Pay Later" products, state officials have come forward to fill in the gap.
• What's at Stake: Americans' use of BNPL has exploded, increasing tenfold from 2019 to 2021.
• Expert Quote: "We are concerned that BNPL companies might not be providing their customers with appropriate protections when they return their purchase, never receive what they ordered, or experience other billing errors," wrote the attorneys general of California and six other states.

Officials in seven largely blue states are trying to ensure that "Buy Now, Pay Later" loans are not also "Regulate Never."

In a letter to the country's largest BNPL companies, the states' attorneys general asked detailed questions on Monday about the lenders' business practices. They also expressed concern that as federal regulators pull back from the sector, BNPL customers may not be afforded the same rights as credit card users.

"We are concerned that BNPL companies might not be providing their customers with appropriate protections when they return their purchase, never receive what they ordered, or experience other billing errors," wrote the AGs of Connecticut, North Carolina, California, Colorado, Illinois, Minnesota and Wisconsin.

BNPL products, which allow consumers to pay for a purchase over several installments, currently exist in a legal gray area. In 2024, the Consumer Financial Protection Bureau issued a rule treating BNPL loans similarly to credit card debt, subjecting them to many of the same regulations. But a year later, after President Trump returned to office, that rule was revoked.

As the CFPB has pulled back, state governments have stepped in to fill the void. New York's 2026 budget, for example, includes legislation setting stricter rules for BNPL lenders, including data privacy protections, dispute resolution standards and limits on charges and fees.

Now seven other states have come forward as well. Although Monday's letter did not announce any legal actions, it put six BNPL lenders — Affirm, Afterpay, Klarna, PayPal, Sezzle and Zip  — on notice that the AGs are paying close attention to their business.

It also demanded information. The states' chief legal officers asked a dozen pointed questions, including how the companies settle customer disputes; how long consumers must wait for customer service; how the lenders evaluate a borrower's ability to repay a loan; and what a customer sees on their phone or computer — screenshots are requested — at the point of sale.

The AGs gave the companies 30 days to answer their questions.

"Our inquiry seeks to better understand the impact of these and other related issues with BNPL on our states' residents, and whether BNPL providers may be in violation of applicable consumer protection laws," the attorneys general wrote.

In recent years, Americans' use of BNPL has exploded, particularly over the course of the COVID-19 pandemic. From 2019 to 2021, the number of loans originated using these products grew more than tenfold, from 16.8 million to 180 million, according to the CFPB. In that same period, total loan volume ballooned from $2 billion to $24.2 billion.

Several of the BNPL lenders addressed in the AGs' letter disputed that they are not thoroughly regulated. The Financial Technology Association, a trade group whose members include Afterpay, Klarna, PayPal and Zip, argued that their customers are in some ways treated better than credit card users.

"BNPL is a valued payment method … with no interest, no revolving debt and no hidden fees," Miranda Margowsky, the FTA's head of communications, said in a statement. "These products are safe, regulated and consumer-friendly, with a business model centered on consumer success, not fees."

Separately, Affirm said both that it welcomes "thoughtful" regulation and that it already holds itself to high standards of responsibility.

"We underwrite every transaction individually and we provide consistent and transparent disclosures at checkout," an Affirm spokesperson said in a statement. "We continually engage with regulators and policymakers as part of our mission to deliver honest financial products that improve lives."

Klarna echoed that message.

"Klarna is committed to protecting consumers, and has built strong safeguards into our services from day one," the company said in a statement. "We support smart regulation that protects consumers and fosters innovation, competition, and alternatives to high-cost credit."

But as state authorities take BNPL oversight into their own hands, some worry that inconsistencies could emerge. The American Fintech Council, a trade group for the industry, suggested that a national set of regulations may actually be preferable to a hodgepodge of state laws.

"We welcome and embrace a thoughtful and consistent regulatory framework that protects consumers while preserving access to responsible credit alternatives, rather than a patchwork of state actions that limits choice and pushes families backwards toward predatory products," the AFC's CEO, Phil Goldfeder, said in a statement.