Affirm Calls for New Caps on BNPL Late Fees
News Summary
Affirm co-founder and CEO Max Levchin advocates for capping Buy Now, Pay Later (BNPL) late fees, arguing it would push industry leaders to focus on robust underwriting models rather than profiting from missed payments. Levchin stated that companies relying on late fees are essentially compensating for poor underwriting, a practice Affirm itself does not engage in. Last year, the U.S. Consumer Financial Protection Bureau (CFPB) had ruled that BNPL should be regulated as credit and proposed an $8 cap on credit card fees. However, these proposals were abandoned in 2025 following President Donald Trump's re-election, as his administration implemented significant cuts at the CFPB. Despite the CFPB's reduced role, Levchin suggested that similar regulations could still be enforced through other means, such as legislation. Conversely, PYMNTS CEO Karen Webster challenged media sensationalism regarding BNPL debt, citing PYMNTS Intelligence data that shows 97% to 98% of BNPL users manage their obligations responsibly, with remarkably low delinquency rates, positioning BNPL as a predictable, transparent, and disciplined credit option.
Background
Buy Now, Pay Later (BNPL) services have become an increasingly popular payment method in the retail sector, allowing consumers to pay for purchases in installments, often with zero-interest options. While particularly popular among younger demographics, its rapid growth has raised concerns about consumer debt accumulation and insufficient regulatory oversight. The U.S. Consumer Financial Protection Bureau (CFPB) had previously attempted to bring BNPL under its regulatory purview, classifying it as a credit product and proposing limits on associated fees. However, these regulatory efforts faced setbacks in 2025 after the Trump administration significantly curtailed the CFPB's powers. Affirm is a major player in the BNPL market, and its business model differs from some competitors (like Klarna and Afterpay) by opting not to charge late fees to consumers. This differentiated strategy has fueled industry discussions about best practices and consumer protection.
In-Depth AI Insights
What are the strategic implications for Affirm's competitive landscape and future revenue model by advocating for late fee caps? - Affirm's move aims to position itself as a more responsible and consumer-friendly leader in the industry. By foregoing late fees and advocating for industry-wide caps, Affirm can enhance its brand reputation, attract consumers wary of high fees, and carve out a differentiated competitive advantage. - This strategy could pressure other BNPL companies, particularly those heavily reliant on late fee revenue, to either reassess their business models or significantly improve their underwriting technology to reduce delinquency rates, lest they risk losing market share or facing regulatory backlash. - In the long term, if legislation eventually imposes late fee caps, Affirm, with its existing no-late-fee model, would be minimally impacted and could even gain a competitive edge, while competitors would need to adjust to the new regulatory environment. How will the Trump administration's cuts to the CFPB and the shelving of BNPL regulatory proposals impact the short-term development and investment risks for the BNPL industry? - In the short term, the reduced regulatory pressure provides BNPL companies with greater operational freedom, potentially stimulating industry expansion and product innovation, especially for platforms that rely on late fee income. This could bolster short-term profitability and attract more investors. - However, a regulatory vacuum might also intensify market competition, potentially leading some companies to relax underwriting standards, thereby increasing latent credit risk, particularly during economic downturns. Concerns over consumer protection will persist and may re-emerge through other channels, such as state-level legislation or consumer litigation. - For investors, while short-term regulatory uncertainty is diminished, the long-term absence of uniform regulation could lead to an accumulation of industry-wide risks and potentially trigger a more stringent regulatory backlash in the future, increasing long-term investment uncertainty. In the absence of robust regulation, how will the BNPL industry balance growth with risk control, and what does this mean for market leaders? - With a lack of stringent federal regulation, BNPL market leaders will face increased pressure for self-regulation, needing to balance growth with risk control through internal safeguards, transparent operations, and enhanced underwriting. Companies that can demonstrate responsible operating models will build stronger market trust and sustainability. - This implies that companies already possessing strong data analytics capabilities and superior underwriting technology (as Affirm claims to do) will be at an advantage. They can more accurately assess credit risk and minimize defaults, allowing them to remain profitable without relying on late fees. - Market leaders may also seek to fill the regulatory gap through industry associations or voluntary codes of conduct to preempt potentially harsher government intervention in the future. Investors will closely scrutinize companies' transparency and risk management practices, which could become key metrics for evaluating their investment value.