State AGs Increase Scrutiny of Buy Now, Pay Later Providers Amid Consumer Protection Concerns

By Ellen T. Berge & Margaret Ulle

Last month, attorneys general from seven states launched a coordinated inquiry into the rapidly expanding “buy now, pay later” (BNPL) market. Led by Connecticut and North Carolina, and joined by California, Colorado, Illinois, Minnesota, and Wisconsin, the multistate coalition of attorneys general sent letters to six major BNPL providers, outlining concerns that the companies’ products may be violating state consumer protection laws.

Regulators Cite Risks: Repayment Challenges and Transparency Concerns

In the letters, state AGs request information on pricing and repayment structures, as well as copies of consumer contracts, user agreements, and disclosures. The inquiries focus on determining whether consumers have received what the states view as appropriate protections—specifically, whether they have encountered a lack of transparency, undisclosed fees, and risky repayment structures.

The letters reference growing repayment challenges in the BNPL space, with an increasing number of borrowers falling behind on payments. The state AGs suggest that BNPL providers could be approving loans without adequately considering consumers’ ability to repay.

States Increase Oversight as Federal BNPL Rule Stalls

After the federal government chose not to implement a rule that would have required BNPL providers to follow the same consumer protections as lenders, this inquiry signals heightened scrutiny of BNPL practices at the state level.

Businesses offering BNPL products should review their terms, marketing, and merchant partnerships to ensure compliance with applicable consumer protection standards. For assistance with assessing your BNPL practices or addressing related consumer protection issues, please contact us.

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The authors thank law clerk Michaela R. Bevan for her assistance in writing this post.