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BNPL products may expose consumers to unclear terms, hidden fees, and debt traps 

December 2, 2025 - OAKLAND — On Monday, California Attorney General Rob Bonta joined a multistate coalition of seven attorneys general sending letters to the six largest buy-now-pay-later (BNPL) lenders seeking information regarding their products and business practices, and the experiences of their borrowers. BNPL is a form of consumer lending and consumers taking these loans can face steep fees, interest payments, and long term hard to their credit if they fall behind. BNPL borrowing has grown more prevalent over the years, with BNPL options being offered at almost every checkout, and tens of millions of consumers reporting taking out these loans. The inquiry aims to determine if BNPL lenders are complying with consumer protection laws and whether their products may be placing California consumers at financial risk, and seeks to better understand the relationships between BNPL lenders and the retailers and service providers they work with.

“Buy Now, Pay Later promises all you can want today without needing all the money upfront. This holiday shopping 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.” said Attorney General Bonta. “Today, we ask Buy Now, Pay Later lenders for full transparency, and we’re warning California consumers about the risk of these loans.”

Today’s letters were sent to lenders Affirm, Afterpay, Klarna, PayPal, Sezzle, and Zip by the attorneys general of California, Connecticut, Colorado, Illinois, Minnesota, North Carolina, and Wisconsin in the wake of a decision by the Trump Administration to abandon rules affirming that BNPL lenders must adhere to the same consumer protections as other lenders.

The BNPL lending industry has grown quickly as consumers take these loans to pay for an array of goods and services, typically at the point of sale, from clothing and groceries to event tickets. The Federal Reserve recently found that the nearly one in four BNPL borrowers are falling behind in their payments. The limited visibility into this debt paired with growing concern that they are concentrated among financially struggling borrowers is why the coalition is taking a closer look. As part of this inquiry, Attorney General Bonta is asking BNPL lenders to explain how they asses a consumer’s financial capacity to repay these loans, and to provide information related to billing practices, late fees, and the handling of disputed charges, and other issues, as well as how the protections they provide to American consumers compare to those provided to consumers overseas.  

Attorney General Bonta joined a coalition of attorneys general in 2022 urging federal regulation of the BNPL lending industry, raising concerns that by touting quick credit application approvals and convenient, flexible payment schedules, BNPL loans and services are particularly appealing to borrowers already struggling with debt or younger borrowers who lack experience with credit, or who may mistakenly believe that on time BNPL loan payments will help build credit. The attorneys general also point out that, similar to predatory lending products, BNPL loans may contain terms and features that are known to trap people in cycles of debt. While some BNPL lenders do not charge interest if loans are paid on time, most BNPL lenders charge late fees, and interest, and report late or missed payments to credit bureaus. As a result, borrowers may accumulate more debt, end up paying more, and do long term damage to their credit when utilizing BNPL loans.  

The Consumer Financial Protection Bureau (CFPB) issued an interpretive rule in 2024 clarifying that BNPL providers are covered under the federal Truth in Lending Act (TILA), meaning they have to give consumers the same clear disclosures and protections as traditional credit products. However, under the Trump Administration, the CFPB abandoned the rule in May 2025, undermining consumer protections for BNPL borrowers.    

Tips for Consumers:  

• Avoid taking BNPL loans. 
• Consider going without goods or services that you cannot afford. Spreading out your payments may make the price look smaller, but it may not make the purchase more affordable.  
• Shop around for credit, rather than opting for a BNPL loan at the point of sale. Alternative options such as credit cards or other loans from your bank or credit union, or turning to family or community-based lenders, may provide better options.  
• Make sure you understand the terms of any loan, including the payments, any fees or interest if you get behind on your payment, as well as any subscription or other fees.  
• Monitor the activity on your BNPL loan account for any billing errors or unauthorized charges.  
• Carefully track your BNPL loan payment due dates so that charges to your debit or credit card or bank account don’t come as a surprise.   
• Insist on a refund from your BNPL lender if you return an item that you have purchased on credit.   

Report any issues with BNPL lenders to the Office of the Attorney General by filing a complaint at oag.ca.gov/report.  

Californians can also file a complaint with California’s Department of Financial Protection and Innovation, here.

Source: CA. DOJ