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Buy-now-pay-later stocks fall on US consumer watchdog probe

By William Hoffman and Kevin Donovan

17:56, 17 December 2021

Lululemon checkout showing PayPal, Afterpay and Klarna
Buy now pay later services are growing in popularity – Credit: Shutterstock

The Consumer Financial Protection Bureau (CFPB) opened a new inquiry into “buy now pay later” (BNPL) credit practices and issued orders to collect information from Affirm, Afterpay, Klarna, PayPal and Zip, according to a notice posted on Thursday.

Shares of three public companies that received the orders – Affirm, Afterpay and PayPal – all opened lower on Friday continuing a modest downward revision that started earlier this week after six US senators, all from the Democratic party, published a letter urging the CFPB to open the inquiry.

Klarna is a private company. Zip trades on the Australian Securities Exchange.

BNPL credit allows consumers to pay for big-ticket items in three or four instalments following an initial down payment at no interest, so long as those incremental payments are made on time. This type of loan grew rapidly amid the Covid-19 pandemic as consumers looked to make larger purchases to fuel their new at-home lifestyles and technology made credit easier to obtain.

Affirm, AfterPay and PayPal stock fell to lows of $92.33, $58.88 and $181.99 per share, respectively, for an 18%, 11% and 2% decline from the start of the week. By mid-day Friday the companies were regaining some of those losses, but all were still trading down over the last five days.

Zip was down 6% on the ASX at A$4.18 per share.

CFBP inquiry

The bureau said it is investigating three key areas of the BNPL sector: accumulation of debt, regulatory arbitrage, and data harvesting.

“Buy now, pay later is the new version of the old layaway plan, but with modern, faster twists where the consumer gets the product immediately but gets the debt immediately too,” said CFPB Director Rohit Chopra. “We have ordered Affirm, Afterpay, Klarna, PayPal, and Zip to submit information so that we can report to the public about industry practices and risks.”

The CFPB noted that merchants are willing to pay 3%–6% of the items cost back to the BNPL creditors because consumers often buy more and spend more when using the payment method. So, with that ease of access to accumulate debt – especially on multiple BNPL services – the CFPB is seeking data on how consumers are impacted.

The regulator is also inquiring about whether the companies are providing proper disclosures to consumers and whether data collection, behavioural targeting, data monetisation create risks for consumers.


127.75 Price
+6.400% 1D Chg, %
Long position overnight fee -0.0262%
Short position overnight fee 0.0040%
Overnight fee time 22:00 (UTC)
Spread 0.12


249.42 Price
+5.620% 1D Chg, %
Long position overnight fee -0.0262%
Short position overnight fee 0.0040%
Overnight fee time 22:00 (UTC)
Spread 0.18


0.72 Price
-0.490% 1D Chg, %
Long position overnight fee -0.0253%
Short position overnight fee 0.0033%
Overnight fee time 22:00 (UTC)
Spread 0.0125


477.93 Price
-0.860% 1D Chg, %
Long position overnight fee -0.0262%
Short position overnight fee 0.0040%
Overnight fee time 22:00 (UTC)
Spread 0.23

Responses from the companies are due 1 March 2022, which means should any regulatory action be forthcoming, it would be unlikely until later next year, according to a report from Barclays sent to

The CFPB implements and enforces Federal consumer financial law and ensures that markets for consumer financial products are fair, transparent, and competitive. 

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Higher scrutiny

The BNPL industry should be able to weather the additional scrutiny because it is “generally superior” and more transparent than revolving credit, Barclays noted in the report.

However, consumers that use these services cannot currently use timely repayments to improve their credit score, the analysts added. If regulators require BNPL companies to implement more stringent underwriting standards and report all loans to the credit bureaus, it could reduce the pool of potential borrowers and limit the number of loans existing borrowers can take out.

“In this context, we see Affirm (AFRM) as potentially better-positioned than peers given the focus on relatively longer-duration, higher-ticket BNPL loans, which is made possible by the company’s robust underwriting engine, and commitment to not charging late fees,” Barclay’s analysts wrote.

Indeed, Affirm charges no late fees but AfterPay – which Square is in talks to acquire in a $29bn (£21.8bn) deal – will charge a fixed late fee capped at 25% of the purchase price of the item. In October, PayPal’s “Pay In 4” service matched Affirm by eliminating its late fees.

“We welcome the CFPB’s review and support regulatory efforts that benefit consumers and promote transparency within our industry,” Max Levchin CEO and founder of Affirm, said in a statement sent to “For nearly a decade, Affirm has been advancing its mission to deliver honest financial products that improve lives, and we have never charged a late or hidden fee, ever. We will continue to engage with all of our stakeholders, including regulators, to support efforts that advance our mission.” reached out to PayPal and Square for comment on the CFPB but did not receive a response by press time. AfterPay does not publicly list a press contact.

Read more: Square (SQ) changes name to Block; delays Afterpay merger vote

Markets in this article

Affirm Holdings Inc (Extended Hours)
32.78 USD
3.33 +11.350%
Affirm Holdings Inc (Extended Hours)
32.78 USD
3.33 +11.350%
PayPal Holdings (Extended Hours)
58.89 USD
2.38 +4.230%

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The difference between trading assets and CFDs
The main difference between CFD trading and trading assets, such as commodities and stocks, is that you don’t own the underlying asset when you trade on a CFD.
You can still benefit if the market moves in your favour, or make a loss if it moves against you. However, with traditional trading you enter a contract to exchange the legal ownership of the individual shares or the commodities for money, and you own this until you sell it again.
CFDs are leveraged products, which means that you only need to deposit a percentage of the full value of the CFD trade in order to open a position. But with traditional trading, you buy the assets for the full amount. In the UK, there is no stamp duty on CFD trading, but there is when you buy stocks, for example.
CFDs attract overnight costs to hold the trades (unless you use 1-1 leverage), which makes them more suited to short-term trading opportunities. Stocks and commodities are more normally bought and held for longer. You might also pay a broker commission or fees when buying and selling assets direct and you’d need somewhere to store them safely.
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