Afterpay will refund late fees paid by customers in California for loans that were deemed “illegal” by the US state’s financial regulator, the two sides say as part of a settlement.
The buy-now pay-later company will pay $1.5 million ($US916,350), of which $US905,000 will go to about 640,000 consumers in California who paid late fees and the rest will be administrative fees.
The settlement is for loans issued without a California financing law licence. It was granted to Afterpay in November last year.
The increasingly popular buy-now pay-later space has been facing increased regulatory scrutiny and Afterpay, considered by many as the sector’s bellwether, has faced the brunt of it back home in Australia, too.
Earlier this year, California’s financial regulator, the Department of Business Oversight (DBO), had also rapped Minneapolis-based and Australia-listed Sezzle Inc for giving out credit without a licence.
“While Afterpay does not believe such an arrangement required a licence from the DBO or illegal, Afterpay has agreed to conduct its operations under the DBO licence as a part of this settlement,” a company spokeswoman said in an email to Reuters.
Buy-now pay-later firms have gained traction, mainly with millennials, by giving an option to buy things through interest-free instalments and helping them sidestep tougher rules related to taking a credit card or loan.
Afterpay shares are $19.92 before the start of ASX trading.