“There is concern that the borrower’s decision is fast, with no ‘pause for thought,’” she said. “At the point of sale, the desire for instant gratification can dominate the decision-making process, because the consumer really, really wants the thing they’re buying.”
Sezzle Inc., a self-described fintech company “with a purpose” that offers small installment loans for online purchases, last year settled an enforcement action with the California Department of Business Oversight. State regulators concluded that Sezzle was making illegal loans under California law. They demanded that the company refund $282,000 to consumers and pay a nearly $30,000 penalty.
A.J. Dhaliwal, special counsel at the law firm Sheppard, Mullin, Richter & Hampton LLP, said whether BNPL products could be considered lending wasn’t really a question until the California regulators deemed they were “loans,” even though the common understanding of the relevant statutes and case law likely wouldn’t have yielded the same legal conclusion.
Because of California’s influence in financial supervision among the states, “there’s a fear that other regulators will reach a similar conclusion, which could result in a decrease in the popularity in using BNPL,” Dhaliwal said.
He said there are growing concerns among regulators that the service “represents a significant potential harm” in terms of a perceived lack of consumer understanding of the risks, “which could lead to overindebtedness, and all of which are exacerbated by the speed and convenience of these platforms and consumer demand.”
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