Affirm CEO Max Levchin is calling on US regulators to introduce new measures to cap late fees on Buy Now, Pay Later (BNPL) purchases.
Levchin spoke to The Financial Times in an interview on October 21, detailing how enforcing regulated caps on late fee charges would encourage US BNPL companies to “get really, really good at underwriting”.
“Everyone in the industry who uses late fees is basically just covering up for the fact that they’re not very good at underwriting,” said Levchin.
“If BNPL was capping its ability to make money on delinquencies and defaults by regulating fees down, it would motivate the players to just get really, really good at underwriting.”
BNPL in the US
Currently, regulations or standards overseeing the BNPL sector in the US are vague.
As part of President Donald Trump’s deregulation stance, the Consumer Financial Protection Bureau (CFPB) announced on May 6 its plans to no longer enforce Regulation Z that was introduced under the Biden Administration.
This would have seen BNPL lending treated in the same classification as credit cards federal Truth in Lending Act. BNPL spend would have been capped with fees for purchases of $8 or more.
While Regulation Z was widely condemned by many of BNPL’s largest players, including Affirm. Chief Legal Officer of Affirm Katherine Adkins wrote to the CFPB in July 2024 calling for more “transparent, honest and both consumer and merchant centric” amendments.
There are no federal regulations that mandate BNPL firms operating in the US to enforce late payment fees. Rather, the onus falls upon the company.
The CFPB has an interpretive rule in place for BNPL firms that offers some form of federal protection for consumers. However, this is interpretive and companies can limit the cap on late fees as they see fit.
Acknowledging this, Levchin told The Financial Times: “You don’t have to have the CFPB to interpret a law, you also don’t have to have the CFPB to enforce it. And so there’s many ways of accomplishing it.”
Are late fee caps the answer?
Late fee policies across the BNPL market are not standard.
Affirm, for example, does not charge consumers if they miss an instalment payment, encouraging them to schedule the payment as soon as possible. If the payment has still not been made, Affirm warns consumers this could affect their chances of using its BNPL services in the future.
Klarna offers an entirely different approach. The Swedish BNPL firm operates a late fee structure. For US consumers, Klarna charges $7 per missed payment using the ‘Pay in 4’ instalment option, but does not exceed 25% of the total order value.
For missed payments using the ‘Pay in 30’ or ‘Pay over time’ services, Klarna has no current late fee policies. However, the company may ask for the payment if the consumer decides to use its BNPL services again in the future.
With no general consensus or federal regulation over how BNPL should cap or operate its late fees policies, this has brought about criticism upon the sector as many deem it incentivises users to lend from BNPL operators and pile up debt.
Next year, the Consumer Credit Directive 2 (CCD2) is set to introduce fee caps on BNPL purchases which would classify these services as credit, with EU countries able to set their own caps.
For example, the Netherlands is expected to introduce a maximum late payment fee cap for purchases over €100 not paid in two months will result in a charge of €2.50 at a 15% annual cap.
With Europe, unsurprisingly, taking a regulatory approach to an evolving financial issue, and the US under Trump’s deregulatory regime, it may take calls from the likes of Levchin in order to establish some form of regulatory oversight on BNPL late payment fees.
