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Buy now pay later stocks slump as consumer watchdog seeks oversight

Affirm Holdings Inc. website home screen on a laptop computer in an arranged photograph taken in Little Falls, New Jersey.

Gabby Jones | Bloomberg | Getty Images

“Buy now, pay later” stocks slipped Thursday after the Consumer Financial Protection Bureau released a report that said it’s seeking more oversight of those companies.

Shares of PayPal and Affirm Holdings fell roughly 1% each. Block’s stock rose 1.5% after slipping earlier in the session.

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The consumer watchdog, which does not currently regulate the sector, plans to issue guidance aimed at subjecting these companies to the same standards as credit card companies — including supervisory exams.

The news comes less than a year after the CFPB said it opened an inquiry into five major buy now, pay later players to gather information about risks associated with the popular loans and their impact on debt accumulation. The group consisted of PayPal, Block, Affirm, Klarna and Australia-based Zip.

The buy now, pay later model — which allows consumers to make short-term usually interest-free installment payments on purchases — has come under pressure in recent months as consumers slow their spending and regulatory pressure mounts. A recession would pose further risks to these fintech businesses.

Data from the CFPB report suggests that buy now, pay later loans in the US soared 970% between 2019 and 2021, to 180 million transactions among the five major lenders, with the value of those loans jumping 1,092% to $24.2 billion.

But as the model skyrocketed in popularity during the pandemic, late fees also mounted, the CFPB said. In 2021, 10.5% of users were subject to at least one late fee, up from 7.9% in 2020.

Shares of Affirm, PayPal and Block have tumbled more than 48% this year amid the broader market sell-off and sit at least 65% off their 52-week highs.

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