A figurative illustration of a “buy now, pay later” receipt
Illustration: Getty Images; Protocol

States will lead the BNPL backlash

Protocol Policy

Hello, and welcome to Protocol Policy! Today, we look at the potential response from federal agencies and state attorneys general as the BNPL business model draws scrutiny in a down economy; New York state’s moratorium on crypto mining came back from the dead; and Microsoft said it won’t stand in the way of unionization efforts (think Activision-Blizzard).

Buy now, pain later

Buy something now, pay for it later: What could go wrong? A lot, it turns out. The BNPL sector is starting to feel the strain of the economic downturn: Customers are behind on payments and look increasingly unlikely to ever pay them back. Early BNPL darlings such as Affirm have seen their valuations shrink by more than 80% from recent highs. Klarna’s CEO recently told staff the company would lay off 10% of its workforce because its 2022 business plans were drafted in “a very different world than the one we are in today.”

The economic downturn is revealing weaknesses in the BNPL business model. BNPL players generally offer “zero interest” loans to customers that can be paid off in installments. The companies then take a fee from retailers, which are willing to pay because customers tend to spend a lot more when using BNPL.

  • But BNPL isn’t magic. When customers get behind on payments, some BNPL firms sell that debt to collection agencies. With delinquencies up, that repackaged debt is worth less. Former industry executives told the Wall Street Journal that the rise in bad debt could prompt banks to stop purchasing loans from BNPL players.
  • BNPL customers also tend to come from younger, riskier credit groups: Gen Zers and millennials are the heaviest users of BNPL. Around 42% of BNPL customers in the U.S. have missed payment deadlines, and the top purchase items were clothing, technology and shoes. A study from Cardify found that 70% of BNPL users had an income below $50,000, and many of them turned to BNPL only after they had drained much of their available credit.
  • All of this sets up a risky situation should BNPL players contend with unexpectedly higher default rates. Affirm has reported that the share of outstanding loan dollars that were 30-plus days late more than doubled from 1.4% at the end of Q1 2021 to 3.7% at the end of Q1 2022.

The media is paying close attention, and regulators are sure to notice. A consistent drumbeat of media reports have highlighted BNPL as a potential systemic economic risk. Just about every major news outlet has run some sort of BNPL update in light of the downturn. The general theme: How did these companies operate in this way for so long? And as media scrutiny keeps ratcheting up, politicians will take note.

States could lead the regulatory push in the U.S. One of the most significant cases so far against BNPL companies came from the California Department of Financial Protection and Innovation, which alleged that the BNPL providers were providing lending services without a license. In 2020, a slew of the major BNPL providers settled with the CDFPI and paid a modest penalty.

  • That could be a preview of larger things to come, as a group of 21 state attorneys general — including those from California and New York — sent a letter to the Consumer Financial Protection Bureau calling for greater regulation of the industry.
  • In the March letter, the state AGs wrote: “We have concerns about new and supposedly innovative financial products that promise to disrupt and democratize the industry but push consumers into cycles of debt and carry some of the same terms and features as other expensive and predatory financial products.”

And while Congress has already stalled in the lead up to midterms, federal agencies may pick up the slack. The window for any brand new legislation to go through Congress this term has essentially closed. But the CFPB has an open inquiry into the BNPL industry, and it has asked for data on how customers use BNPL services and how the companies in turn use that data. That inquiry opened in 2021, well before the Fed hiked interest rates and the stock market tumbled. The shifting economic landscape around the inquiry could encourage the CFPB to put more strict rules in place. Even if it doesn’t, the questions surrounding BNPL won’t go away, and someone else could tackle it too.

— Hirsh Chitkara (email | twitter)

In Washington

A bipartisan privacy bill is taking shape that would include preemption of most state privacy provisions and some consumer rights to sue, POLITICO Pro reports. The top House Democrat and top House and Senate Republicans in the debate are on board with the measure that could break years of stalemate on the issues, but the main Senate Democratic negotiator, Maria Cantwell, is holding out. Senate Majority Leader Chuck Schumer has pushed Cantwell to get to a deal quickly, according to POLITICO.

Elizabeth Warren, Bernie Sanders, Alexandria Ocasio-Cortez and two other Democratic lawmakers wrote to Andy Jassy about that new Amazon worker chat app that reportedly bans discussion of working conditions. They said they wanted “to understand Amazon’s compliance or noncompliance with” labor laws and figure out “whether further Congressional action is necessary.”

A coalition of consumer groups is pushing the FTC to probe Electronic Arts over lootboxes in FIFA Ultimate Team. Their letter suggests the game may be violating bans on unfair or deceptive practices, especially with regard to kids who may not understand how in-game currencies translate to real-world cash.

The window for the FTC to throw hurdles up in front of Elon Musk’s purchase of Twitter has closed without action, the company announced. While the FTC has been reminding companies that it can always go back to challenge deals, Musk’s plans probably never really presented many problems from the standpoint of competition law to begin with.

In the states

New York’s crypto mining moratorium roared back from the dead to pass the state’s legislature. It now heads to Gov. Kathy Hochul’s desk, where it would become a first-in-the-nation ban if she signs it into law.

Trump endorsedBlake Masters — another Peter Thiel acolyte who now says mean things about tech (and echoes the former president’s election lies) as he tries to stand out in the crowded Republican Senate primary, this one in Arizona.

General Motors won a permit to charge customers in San Francisco for self-driving rides. The company plans to launch the paid ride-hailing service within the next few weeks. There are still heavy restrictions on operations, as the vehicles will be limited to a top speed of 30 miles per hour within a set boundary within the city.


At the same time that the pandemic demonstrated all that is possible in an interconnected world, we saw in new and increasingly stark ways how certain communities continue to be marginalized and harmed by a persistent digital divide and how effectively that divide exacerbates our society’s other inequities.

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In the courts

The CFTC is suing Gemini, alleging the Winklevoss twins’ crypto exchange misled the agency during 2017 conversations about a bitcoin futures contract product.

Free speech aside, Justice Samuel Alito’s recent writings hint he and two conservative colleagues are also watching the growing economic power of Big Tech and re-reading the intellectual forerunner of anti-tech antitrust.

On Protocol

The Chips Act is no sure thing, Christopher Padilla, vice president of Government and Regulatory Affairs at IBM, told Protocol in a Q&A. The problem is provisions, Padilla said, as when “you put too many decorations on the Christmas tree and it falls over.”

A look at the moments that defined Sheryl Sandberg’s career, from the 2010 Lean In TED talk to the 2018 Cambridge Analytical scandal and beyond.

The CFPB is winding down its fintech sandboxes — allowances for certain companies to try out offerings on a small scale without risking regulators’ wrath. Many forms of emerging tech have embraced sandboxes across an array of jurisdictions as a way to test innovations, but consumer groups say they just mean the government is turning a blind eye to harms.

Around the world

EU lawmakers are expected to decide on a common charging port on June 7, when they’ll hold their second broader meeting on the subject. Apple has of course been adamantly against the effort to standardize charging, and it could choose to design iPhones specifically for the EU rather than adapt its ports worldwide.

A top German court ruled that YouTube and other video-sharing platforms could be liable for copyright damageseven if the content was uploaded by users. The ruling closely resembles that of the EU Court of Justice in 2021, per Reuters.

In the media, culture and metaverse

Brad Smith said Microsoft won’t try to get in the way of employee unionization drives. Smith has taken pains to distinguish his company from other tech giants — you know, like Amazon and Apple, which are in rising confrontations with workers who are trying to organize. Microsoft doesn’t have unions yet, although if its deal for Activision Blizzard goes through, it will inherit one that formed at subsidiary Raven just last week.

The Alliance for Securing Democracy has developed a dashboard showing how Russian internet giant Yandex is portraying the war in Ukraine to everyday Russians. As we’ve reported, the company’s search engine has a longtime handshake deal with the government to keep independent news off its homepage, according to a former company official, and appears to be dragging its feet on updating images of war-torn regions in Ukraine.

In data

52%: That’s how much Tiger Global’s assets have fallen since the start of the year. The firm cut management fees and upped withdrawal allowances to appease investors as valuations sink. Even so, the firm reported five times as many inflows as redemption requests, according to Bloomberg.


There is so much more we need to do to make sure our future is more equitable and inclusive and maximizes America’s potential. It is not enough just to ensure everyone is connected. We also need to extend the full scope of digital opportunity to the people, the communities, and the institutions.

Learn more

The only thing getting cheaper …

As Americans have begrudgingly come to live with sticker shock, Chevy released a bit of news that seems to go against the overwhelming trend of everything getting much, much more expensive: The Detroit automaker reduced the price of the Bolt, its flagship EV, by $6,000. That provides a glimmer of hope for lawmakers who have been anxiously awaiting the economies of scale to kick in and make EVs more affordable. It won’t be that affordable, however: The Bolt no longer qualifies for the EV tax credit, as Chevy sold more than the benchmark 200,000 EVs.

Thanks for reading — see you Monday!

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