North Carolina Attorney General Jeff Jackson has launched a comprehensive inquiry into buy-now-pay-later lending practices, targeting major BNPL providers including Affirm, Klarna, PayPal, Afterpay, Sezzle, and Zip. According to North Carolina Department of Justice spokesperson Nazneen Ahmed, their office has received 53 complaints against Affirm and nine against Klarna, with an additional 454 complaints against PayPal related to various services. The inquiry focuses on concerns that "BNPL companies might not be providing their customers with appropriate protections" regarding returns, billing errors, and adequate assessment of borrowers' repayment capacity. Affirm spokesperson Brian Levin responded that the company does not charge late fees and underwrites "every transaction individually" with "consistent and transparent disclosures at checkout."
Buy-now-pay-later services have gained massive traction, with approximately 90 million Americans now utilizing BNPL options, according to The Motley Fool. Latest Federal Reserve data shows 15% of adult survey respondents used BNPL services in the last 12 months, up from 10% in 2021. However, roughly a quarter of users paid late, increasing from 15% in 2021, with more than half shopping with BNPL because they could not afford purchases otherwise. Affirm, a leading BNPL provider, has capitalized on this trend with its gross merchandise volume (GMV) surging 38% to $36.7 billion last year, growing from $20.2 billion since 2023. The company's no-interest loans grew 74% in its first quarter ending September 30, driven by consumer preference for short-term installment loans over traditional credit cards.
Affirm has achieved a significant financial turnaround, cutting operating losses from $1.2 billion in 2023 to $87 million last year. The company reached a major milestone by posting operating income of $63.7 million in its first quarter, achieving its first profitable quarter on a GAAP basis, according to The Motley Fool. This improvement comes as consumers, particularly Gen Z and millennials, increasingly shift away from high-interest credit cards toward BNPL options, with more than half of these demographics using BNPL more than credit cards. Affirm projects GMV of $47.5 billion for fiscal 2026 with operating margins of 7.5%, demonstrating strong growth trajectory despite regulatory challenges.
President Trump's proposal for a 10% cap on credit card interest rates could create significant opportunities for BNPL providers like Affirm. According to Evercore's Washington policy team, as cited by The Motley Fool, the credit card interest rate cap is "highly unlikely" because it would require legislation, given that the National Bank Act permits credit card companies to charge interest at maximum state-permitted rates. However, if banks voluntarily lower rates due to pressure or scale back lending to near-prime borrowers, it could push marginal borrowers toward BNPL options. Following Trump's announcement, Affirm's stock increased early this week while bank stocks declined, as reported by American Banker. Financial experts predict this will drive consumers toward alternative credit sources, with Marc Butler noting that "BNPL will see a rush into the credit industry" as fintechs become the "lender of last resort."
The BNPL industry is responding to both regulatory scrutiny and market opportunities with defensive measures and new offerings. Klarna spokesperson Clare Nordstrom emphasized the company "has built strong safeguards" including eligibility assessments and service pauses after missed payments, helping ensure a more than 99% repayment rate. Meanwhile, Bilt launched three new cards with a 10% interest rate cap for one year following Trump's proposal. The Financial Technology Association, representing major BNPL providers, defended the sector stating that "responsible use of the services, including repaying in full and on time, is the norm" and describing BNPL as "safe, regulated, and consumer-friendly." The inquiry represents the latest effort by Jackson's office to protect consumers in online commerce, following recent action against unlawful tobacco storefronts on Shopify.
