U.S. MSB Daily News
USMSB.com – Buy now, pay later lenders just got a holiday surprise — and it’s not a discount.
A coalition of seven state attorneys general is demanding detailed answers from six of the biggest BNPL providers, warning that the wildly popular “split it in four” plans may be shoving already strained consumers into hidden-fee debt traps.
California Attorney General Rob Bonta led the charge on December 1, 2025, with a hard-hitting press release bluntly warning shoppers to think twice before tapping BNPL at checkout — and in some cases, to skip these loans altogether.
The letters: who’s in the crosshairs
The AGs from California, Connecticut, Colorado, Illinois, Minnesota, North Carolina and Wisconsin fired off letters this week to BNPL heavyweights:
- Affirm
- Afterpay (owned by Block)
- Klarna
- PayPal
- Sezzle
- Zip
According to a report from Payments Dive, the letters ask for a sweeping data dump on how these lenders actually operate, including:
- What types of loans they offer and how repayment is structured
- How customers can reach real support when something goes wrong
- How billing disputes, refunds and returns are handled
- How they decide whether a borrower can realistically repay
- How they report to credit bureaus
In the letters, the AGs say they’re “concerned” BNPL firms may not be giving shoppers proper protections when goods are never delivered, are returned, or when there are other billing errors — situations where traditional credit card rules are much clearer.
The coalition also wants to know whether these companies are truly complying with state and federal consumer-protection laws, or instead putting residents at financial risk.
Bonta’s message: “Borrow now, regret later”
In his “Borrow Now, Pay Later?” release, Bonta doesn’t mince words. He calls BNPL “a form of consumer lending” that can pile on steep fees, interest and long-term credit damage if borrowers fall behind.
His office points to Federal Reserve data finding that nearly one in four BNPL borrowers are falling behind on payments — and that this debt is often concentrated among already struggling households.
Bonta’s warning label for BNPL this holiday season boils down to:
- Avoid BNPL if you can.
- If you can’t afford the purchase up front, consider going without instead of slicing it into four.
- Shop around for credit — a bank, credit union or even family support might be cheaper and more transparent.
- Know the deal: understand all payments, late fees, interest, and any subscription-style charges.
- Track due dates and watch your accounts closely for surprise debits or bogus charges.
He also tells consumers to insist on refunds from BNPL lenders when items bought on credit are returned — and to report bad behavior to both the California Department of Justice and the state Department of Financial Protection and Innovation.
Federal watchdog steps back, states step in
The timing isn’t an accident.
Bonta’s office notes that the Consumer Financial Protection Bureau (CFPB) issued an interpretive rule in 2024 saying BNPL providers fall under the Truth in Lending Act (TILA) — meaning they should offer card-style disclosures, dispute rights and refund protections.
But in May 2025, under the Trump administration, the CFPB abandoned that rule, effectively walking back those protections and leaving a regulatory vacuum.
Now state AGs are racing to fill that gap. Their letters follow a separate push just two weeks earlier, when several Senate Democrats demanded similar information from BNPL firms about who uses these products and how often they pay late.
Industry: We’re not the bad guys
BNPL providers aren’t exactly taking this lying down.
Klarna says it has “safeguards” baked into its products, including upfront eligibility checks and freezes on new purchases when a payment is missed — claiming that over 99% of its lending is repaid and that it supports regulation that protects consumers while encouraging innovation and competition with high-cost credit.
An Affirm spokesperson, meanwhile, says the company backs “thoughtful regulation and consistent industry standards,” pointing to CEO Max Levchin’s public calls for tighter oversight of the sector.
Four of the six targeted firms — Afterpay, PayPal, Sezzle and Zip — had not publicly weighed in at the time of publication.
BNPL boom collides with scrutiny
The crackdown comes as BNPL spending is exploding.
From November 1 to December 1, U.S. BNPL volume hit $10.1 billion, a 9% year-over-year jump, according to Adobe Analytics — making it the highest figure the firm has ever tracked for that pre-holiday period.
On Cyber Monday alone, BNPL drove more than $1 billion in online spend, even as regulators and consumer advocates waved red flags over mounting household debt.
So while BNPL companies pitch themselves as flexible, fee-light alternatives to plastic, state officials increasingly see a familiar pattern: easy credit, opaque terms, and borrowers juggling more debt than they can handle.
Why it matters for MSBs and compliance teams
For money services businesses and compliance officers, this latest volley is more than a headline:
- Regulatory creep: Even without a clear federal BNPL rule, states are signaling they’ll use existing consumer-protection, unfair-practices and lending laws to police installment-style products at checkout.
- Data and disclosure expectations: The AG letters show what information regulators now expect BNPL and BNPL-adjacent products to have at their fingertips — from underwriting logic to dispute workflows and credit-bureau reporting.
- Holiday-season risk: BNPL is surging precisely when chargebacks, fraud and consumer-complaint volumes spike, creating operational and reputational risk for any platform touching these flows.
For now, the message from the states is loud and clear: BNPL is credit, and credit comes with rules. Whether the federal government re-enters the ring or leaves the fight to states could define the next chapter of this fast-growing corner of consumer finance.
U.S. MSB Daily News
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