States raise questions about BNPL

A multi-state coalition of attorneys general want to know more about buy now pay later and the largest firm offering this popular new payment option that allows consumers to spread out the cost of their purchases over short-term interest-free periods.

"Buy-now-pay-later loans may seem simple and safe, but they can lead to surprise fees and growing debt," said North Carolina Attorney General Jeff Jackson. "Laws exist to protect North Carolinians from predatory lenders, and we are going to make sure these lenders are following the law."

In addition to Jackson, the attorneys general of California, Colorado, Connecticut, Illinois, Minnesota and Wisconsin signed on to the joint letter. The letter was sent to the six largest BNPL firms – Affirm, Klarna, PayPal, Sezzle, Zip, and Afterpay, which is owned by Block.

"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," the attorneys general stated in their letter to the six firms. "We are also concerned that BNPL providers may not adequately assess borrowers' capacity to repay their loans. The Federal Reserve recently found that the portion of BNPL borrowers falling behind has 'increased sharply,' to nearly one in four borrowers."

From one-off to one to go to

BNPL in the space of just a few years has gone from being a one-off payment option to a go-to way to spread out the cost of purchases for millions of Americans. Consumers put $10.1 billion on BNPL plans between Nov. 1 and Dec. 1, 2025, according to Adobe Analytics. That's a 9 percent increase over the same period last year.

"Buy now pay later promises all you can want today without needing all the money upfront," said California Attorney General Rob Bonta. "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."

State AGs as well as the Consumer Financial Protection Bureau have raised concerns in the past about BNPL vis-à-vis consumer protections. The CFPB issued an interpretive ruling in 2024 clarifying that BNPL providers are covered by the federal Truth-in-Lending Act, which requires lenders to provide consumers with clear disclosures and protections the same as those associated with traditional credit products. However, the rule was eighty-sixed by the Trump Administration in May.

A group of Senate Democrats has also expressed concerns about BNPL and recently sent letters to the same six BNPL firms requesting details about who uses the products and how many of them pay late.

12 detailed questions

The letter from the attorneys general requests detailed responses to a list of 12 questions, adding that the scope of responses should be limited to the period between January 2023 and the present. Among the details requested:

• Pricing and repayment structures of products, and what portion of U.S. annual loan volume and revenues are derived from each.

• Procedures for addressing consumer disputes, as well as number of disputes and metrics used to track them.

• Procedures used to determine whether a consumer has the financial wherewithal to repay.

• Whether and how the loans are reported to credit reporting agencies.

• Internal analyses of delinquencies and defaults.

• Procedures for establishing relationships with merchants.

• The five merchants from whom the most revenue is derived.

• Efforts made to comply with the Truth-in-Lending Act.

Responses were requested within 30 days from the date of the letter, which was Dec. 1.

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