AFRM, PYPL, AFTPY Stocks: Why Are Buy Now Pay Later Stocks Getting Slammed?

Buy now pay later (BNPL) stocks are under pressure today after one consumer watchdog is taking aim at the industry. Indeed, the Consumer Financial Protection Bureau (CFPB) announced Thursday it is investigating several popular BNPL companies. Specifically, the CFPB is looking into how the companies harvest user data and how they may be circumventing some consumer protection laws. Affirm (NASDAQ:AFRM), PayPal (NASDAQ:PYPL) and Afterpay (OTCMKTS:AFTPY) are down 0.19%, 2.06%, and 2.13%, respectively, at the time of writing as concerns continue to grow.

The website for Affirm (AFRM) is shown on a cellphone sitting atop a stack of $20 bills.
Source: Joaquin Corbalan P /

Rather than pay the entirety of a product’s cost up front, BNPL allows consumers to break it up into smaller payment increments over the course of weeks or months. Many merchants are even willing to pay fees to the product’s company in exchange for allowing the payment option, as it encourages greater spending.

CFPB Director Rohit Chopra commented on the nature of the inquiry:

“Buy now, pay later is the new version of the old layaway plan, but with modern, faster twists where the consumer gets the product immediately but gets the debt immediately too. We have ordered Affirm, Afterpay, Klarna, PayPal, and Zip to submit information so that we can report to the public about industry practices and risks.”

What else do you need to know about the payment provider crackdown? And what might it mean for buy now pay later stocks?

Buy Now Pay Later Stocks Hit Road Bump Amid Holiday Shopping Boom

If you need evidence of BNPL’s staggering growth, look no further than this year’s Black Friday. The most recent iteration of the commercial holiday saw BNPL transactions exceeding 750,000 on that Friday alone. Use of the payment method increased 29% year-over-year during the Black Friday to Cyber Monday shopping spree.

With its increased popularity comes a host of relevant concerns for the payment system. BNPL is particularly popular with young people, many of whom lack credit cards because of low credit scores or income. As such, concerns of debt pile-ups for those unable to pay off often liberal shopping trips, become more valid.

Understanding the CFPB’s Headline-Grabbing Investigation

As per its announcement, the CFPB is investigating accumulating debt, regulatory arbitrage and data harvesting related to BNPL.

Accumulating debt refers to the frequency of BNPL purchases. Unlike layaways, which were typically for rare, large purchases, many find themselves putting off payments on an everyday basis. As such, it’s easy to lose track of the often complicated payment schedules consumers can find themselves subject to. Predictably, many payment providers have fees associated with late payments.

BNPL companies could also be in violation of consumer protection laws. BNPL providers don’t offer the same guarantees credit cards and banks provide, which could be a form of regulatory arbitrage.

Lastly, BNPL companies gain substantial leverage over their customers with knowledge of their shopping preferences. As such, they can specifically target young people within certain income groups to ensure continued profitability. The CFPB has stated an interest in understanding the risks such a system levies on consumers.

Time will tell if the investigation yields any troubles for the burgeoning payment plan and buy now pay later stocks.

On the date of publication, Shrey Dua did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the Publishing Guidelines.

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