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The investigation by a coalition of seven Democratic state attorneys general (AGs) is scrutinising buy now, pay later (BNPL) providers, seeking answers to questions on consumer protection.
On December 1, 2025, the state AGs wrote to the six largest BNPL providers in the US, requesting details of their products, practices and customer experiences.
The state AGs are concerned that the Trump administration’s decision not to enforce a Biden-era interpretive rule that equates BNPL with credit card products is putting consumers at risk.
Issued in May 2024 by the Consumer Financial Protection Bureau (CFPB), the rule was effectively dropped in May this year, when the CFPB said it would focus on “more pressing threats” and would seek to rescind it.
The inquiry is led by the AGs of Connecticut and North Carolina, with support from their counterparts in California, Colorado, Illinois, Minnesota and Wisconsin. They have contacted PayPal, Affirm, Afterpay, Klarna, Sezzle and Zip for information.
The AGs aim to assess BNPL compliance with consumer protection laws and potential consumer financial risk, while examining lenders’ relationships with retailers and service providers.
Counting the costs of BNPL
The AGs note that late BNPL repayments are rising faster than overall usage. Research by the Federal Reserve Board shows that almost a quarter (24 percent) of BNPL users made a late payment in 2024, up from 18 percent in 2023, whereas overall US BNPL adoption increased just from 14 percent to 15 percent.
Late payment growth was most pronounced among users earning less than $25,000, rising nine percentage points. More than half (58 percent) of BNPL users in 2024 said they used it because it was the only way to afford purchases; among users earning less than $50,000, nearly three-quarters (72 percent) cited the same reason.
“We are concerned that BNPL providers may not adequately assess borrowers’ capacity to repay their loans,” the AGs wrote in their joint letter.
Information requested
Providers have 30 days to respond, including state-level data where available. The requests cover loan products, pricing, volume, revenue, consumer disputes, and resolutions
The AGs also seek details on billing errors, returns, and how customers can contact support, including expected response times and outcomes. In addition, they request internal analyses of delinquencies and defaults, as well as comparisons with BNPL services offered in other jurisdictions.
A key question is whether the six providers have complied with Subpart B of the federal Truth in Lending Act (TILA), previously broadly applied to BNPL under the CFPB’s interpretive rule.
An Affirm spokesperson told Vixio that the company has “long supported thoughtful regulation and consistent industry standards”, adding that it had welcomed the CFPB’s interpretive rule when it was issued last year.
“We are encouraged that the CFPB is promoting consistent industry standards, many of which already reflect how Affirm operates, to provide greater choice and transparency for consumers,” the company said at the time.
After receiving the AGs’ letter, Zip also shared a statement noting that its US operations are “consistent” with the interpretive rule, despite its rescission.
PayPal told Vixio that most of its BNPL loans in the US are small dollar amounts and allow customers to pay over time with no interest and no late fees.
Regarding items that are unreceived or received not as described, the company noted that its PayPal Purchase Protection programme allows BNPL users to be reimbursed.
Sezzle and Block, owner of Afterpay, did not respond after being contacted by Vixio.
Block and PayPal are both members of the Financial Technology Association (FTA), which in 2024 sued the CFPB in an effort to have the interpretive rule withdrawn. Zip is also an FTA member.
Mapping BNPL regulation in the US
In the US, New York is currently the only state with a standalone regulatory framework for BNPL products. Enacted in May 2025, the state’s BNPL Act creates a dedicated licensing regime for BNPL providers through the New York Department of Financial Services (NYDFS), making loans from unlicensed providers unenforceable and allowing safeguards such as disclosure, dispute resolution, fee limits, and data protections.
Of the seven states that have launched the inquiry, California currently has the strongest protections for BNPL users. Under the California Financing Law (CFL), the state has classified many BNPL products as “consumer loans”, meaning that providers must have a lender’s license.
In 2020, Afterpay and Sezzle were fined $90,000 and $28,000 respectively for providing “illegal” BNPL loans within the state. As part of their settlements, Afterpay agreed to refund $905,000 of late fees collected from users in California and Sezzle agreed to return $282,000.
Neither company admitted or denied wrongdoing, but both obtained the required license following the settlement.
California’s licensing requirement subjects BNPL providers to the same disclosure, marketing, debt collection and consumer loan protections that apply to other lenders under the CFL.
However, research from the Center for Responsible Lending has shown that, even in California, the average BNPL user has a “very weak” overall understanding how BNPL credit works and what protections apply.
Other states, including Nevada, Maryland, Georgia, have made it similarly explicit that BNPL products are “small loans” or “consumer loans”, and providers thus require a credit license.
But others, including Connecticut, North Carolina, Colorado and Illinois are yet to unambiguously classify BNPL products as subject to consumer credit licensing requirements.
It is notable, for example, that Afterpay holds credit licenses in Nevada, Maryland, Georgia and California, but not in any of the other states whose AGs have joined the inquiry.
BNPL providers operating in the inquiry states are therefore faced with an unclear regulatory landscape that is subject to change, and that is likely to change, given the growth in BNPL users and late payers.
For such providers, ensuring compliance with state laws will continue to be a key consideration, but as the AGs’ inquiry suggests, states may in future cooperate towards some form of standardised, though not necessarily federal, approach to BNPL regulation.
The multi-state AG inquiry underscores the fragmented US BNPL regulatory environment. Payments firms must anticipate heightened scrutiny and state-level compliance requirements in areas such as consumer disclosures, late payments and billing errors.
Firms operating across multiple states should prepare for patchwork regulation and potential cooperative enforcement actions while advocating for consistent industry standards to mitigate operational and reputational risks.
