BNPL reputation battle moves to the US Courts

Hand turns dice and changes the expression 'buy now pay now' to 'buy now pay later'.
Editorial credit: FrankHH / Shutterstock.com

As Sezzle takes Shopify to court over claims of reputational sabotage, new data from the CFPB challenges the assumptions underpinning BNPL’s critics. 

When Sezzle filed a legal complaint against Shopify on June 9, it accused the e-commerce platform of more than just contract interference.

The Minnesota-based BNPL provider claimed Shopify had actively spread misleading information about the risks of buy now, pay later to consumers, painting Sezzle as a harmful alternative to its own in-house product, Shop Pay Installments.

According to the complaint, Shopify allegedly discouraged merchants from using Sezzle by citing unverified concerns over consumer harm. Sezzle stated this messaging damaged its commercial relationships and reputation at a time when BNPL remains under close public and regulatory scrutiny.

The case draws attention to a wider conflict now playing out in the US: the disconnect between how BNPL is perceived, how it is marketed, and what the data shows about its actual effects on consumer debt and repayment behaviour.

A growing corner of consumer credit

Buy now, pay later has become a fixture in the US payments landscape. The model, which allows consumers to split purchases into equal instalments with no interest, saw rapid adoption during the pandemic. From fashion retailers to electronics stores, merchants embraced BNPL to reduce cart abandonment and boost average order values.

Pay-in-four products have become the most popular structure, typically offering consumers a short-term loan repaid over six weeks. Companies such as Afterpay, Klarna, Affirm, and Sezzle helped to build the model’s reach, while Apple and PayPal moved quickly to integrate similar options into their digital wallets.

BNPL has proven particularly appealing to younger shoppers and those with limited access to traditional credit. The result is a fast-growing sector with widespread use, but one that still sits outside the framework applied to mainstream lending products.

Despite its scale, BNPL remains loosely regulated in the US. In May 2025, the Consumer Financial Protection Bureau (CFPB) announced it would no longer enforce its 2024 interpretive rule treating BNPL as equivalent to credit cards, and is now considering repealing the rule entirely. The decision followed litigation and reflects the regulator’s shift towards more targeted oversight.

Conflicting narratives

Criticism of BNPL has grown alongside its popularity. Consumer advocates have raised concerns about the potential for overextension, particularly among young or financially vulnerable borrowers. Some reports have suggested BNPL users are more likely to fall behind on payments or to rely on multiple short-term loans at once.

In its complaint, Sezzle claimed Shopify drew on these concerns to undermine its standing. The filing states that Shopify portrayed Sezzle’s product as risky and harmful, despite lacking evidence to support those claims. This, Sezzle argued, was part of a strategy to pressure merchants to adopt Shop Pay Installments, which Shopify has described as a safer and more tightly integrated option.

The reputational risk surrounding BNPL has also influenced broader debates about regulation. Policymakers and consumer groups have repeatedly questioned whether BNPL is exposing users to hidden costs or bypassing existing credit checks. These views have shaped public discourse, even as data on actual repayment outcomes has remained limited.

A recent working paper from the CFPB helps to clarify this picture. By linking BNPL applications with credit bureau data, the study offers new insight into how consumers use these products and whether they contribute to wider financial strain.

Evidence from the CFPB

The CFPB’s working paper, published in 2024, provides one of the most detailed analyses to date on the impact of BNPL use. Drawing on application data from the six largest BNPL providers in the US and linking this to credit bureau records, the study focused on nearly 392,000 first-time applicants between 2019 and 2022.

The findings offer a counterpoint to many of the concerns raised in public discourse. Consumers who were approved for their first BNPL loan saw an increase in BNPL usage in the following quarter. However, this rise did not persist and was not accompanied by increases in other forms of consumer debt.

The study found no evidence that BNPL usage made it harder for consumers to repay existing debt. There were no observed increases in delinquencies, credit card utilisation, or finance charges. In some cases, the researchers noted a substitution effect, where consumers used BNPL instead of relying on credit cards or other loan products.

Most notably, the data showed that around 80% of BNPL applicants had subprime credit scores or no score at all. Despite this, repayment rates were high, with 98% of BNPL loans repaid successfully. This performance compared favourably with traditional credit products, particularly for similar borrower profiles.

These findings suggest that the risks often attributed to BNPL may be overstated, at least in the context of pay-in-four products. The study’s authors also highlighted that the effects observed were tied to relatively small loan amounts and early-stage usage, noting that patterns could shift as the market evolves.

Beyond the legal dispute

While the Sezzle complaint centres on alleged misrepresentation and commercial interference, it also reflects deeper competitive pressures in the payments space. BNPL is no longer a niche product. It is embedded in checkout systems, mobile wallets, and digital platforms. Control over how these products are presented to merchants and consumers carries growing strategic weight.

Sezzle has argued that Shopify used its position as a dominant e-commerce provider to steer merchants away from external BNPL providers and toward Shop Pay Installments. This, the complaint claims, was done not only through commercial terms, but by shaping perceptions of risk.

The case highlights how reputation has become a key battleground. At a time when the BNPL sector is under regulatory attention, the way these products are framed- whether by platforms, competitors, or policymakers – can influence adoption and market position.

The CFPB research suggests that many of the warnings tied to BNPL do not align with real-world outcomes. Yet providers still face scepticism, and must compete not only on product design, but on the story told around their impact.