Dive Brief:

• Attorneys general in seven states sent letters on Monday to a half dozen buy now, pay later companies, including Klarna Group and Affirm Holdings, asking for information about their loan services and how payment disputes are resolved.
• The states want to know — among other things — what kind of loans the BNPL players offer, how those loans are repaid, how users can contact customer service help, the procedures for customer disputes, how a company decides whether or not a consumer can repay a loan, and how information is reported to credit reporting agencies, the letters said.
• “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,” said the letters, which were signed by the attorneys general of Connecticut, California, Illinois, Wisconsin, North Carolina, Colorado and Minnesota.

Dive Insight:

In addition to Klarna and Affirm, the letters were addressed to PayPal Holdings, Block-owned Afterpay, Sezzle and Zip.

The state AG move comes just two weeks after a handful of Senate Democrats sent similar letters to several buy now, pay later companies, seeking information about who uses the BNPL firms’ services and how often, and which consumers pay late. 

The attorneys general want to know if BNPL companies are complying with consumer protection laws or are placing residents of the seven states at financial risk, a press release on the California Department of Justice website said. 

“Buy now, pay later promises all you can want today without needing all the money up front,” California Attorney General Rob Bonta said in the news release. “This holiday 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.”

Klarna has safeguards built into its lending products, a spokesperson said in an emailed statement. “We rigorously assess eligibility before purchases, pause use if a payment is missed, and as a result, over 99% of our lending is repaid,” the statement said. “We support regulation that protects consumers and fosters innovation, competition and alternatives to high cost credit.”

An Affirm spokesperson said in a statement that the company supports “thoughtful regulation and consistent industry standards,” and noted that Affirm CEO Max Levchin has called for better oversight of the BNPL industry.

Spokespeople for the four other BNPL companies that received the letters did not immediately respond to requests for comment.

The Consumer Financial Protection Bureau under the Biden Administration proposed an interpretive rule that would have treated by now, pay later loans like credit card transactions and provided consumers with protections — including the right to dispute charges and ask for refunds — afforded to credit card holders.

The Trump administration scrapped the Biden administration rule shortly after President Donald Trump took office earlier this year.

The letters were reported earlier Tuesday by the Wall Street Journal.