“It is feared that the borrower’s decision will be swift, without ‘pause to think’,” 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 are buying.”
Sezzle Inc., a self-proclaimed fintech company “with a goal” that offers small-installment loans for online purchases, settled an enforcement action last year with the California Department of Business Oversight. State regulators concluded that Sezzle was making illegal loans under California law. They demanded that the company reimburse consumers $ 282,000 and pay a fine of nearly $ 30,000.
AJ Dhaliwal, special advisor to law firm Sheppard, Mullin, Richter & Hampton LLP, said whether BNPL products could be considered loans was not really an issue until regulators Californians consider them to be “loans”, although a common understanding of the relevant statutes and case law would not likely have resulted in the same legal conclusion.
Due to California’s influence in financial supervision among states, “there is a fear that other regulators will come to a similar conclusion, which could lead to a decrease in the popularity of the use of BNPL.” Dhaliwal said.
He said regulators are increasingly concerned that the service “represents significant potential harm” in terms of consumers’ perceived lack of understanding of the risks, “which could lead to over-indebtedness, and all of which are exacerbated by the speed. and the convenience of these platforms and consumer demand.