Financing fintech Sezzle blocked from making loans in California
The California Department of Business Oversight (DBO) has denied the application of a point-of-sale (POS) fintech to make loans in the state, and has issued clarified guidance for other fintechs looking to do the same.
Minnesota-based Sezzle, which offers interest-free payment instalment plans at POS, stated in its application to the DBO that it targets young consumers who are unable to qualify for traditional financing options, like credit cards.
Users of Sezzle pay 25% of the purchase price at the time of purchase and the remainder in three equal instalments due every two weeks.
On the merchant side, Sezzle receives a cut of each transaction, and consumers must pay fees if they miss their schedule.
The DBO determined that under California Financing Law, the financing transactions made by Sezzle were to be classified as unregulated loans.
It states: “Under the guise of purchasing from merchants already-consummated credit sale contracts – which may not be covered by the CFL – Sezzle designed its financing product to evade California and federal law.”
The purported credit sales made by Sezzle’s merchant partners were not bona fide, the DBO adds, but were “structured to evade otherwise applicable consumer protections”.
Alongside its decision, the Californian regulator has issued a series of statement whereby POS financing transactions are deemed loans:
- When the consumer, merchant, and third-party financer treat the transactions like loans, despite contradictory language in the applicable contracts;
- When the relationship between merchant and third-party financier is extensive
- When the role of the third-party are not clearly disclosed
- When the transaction is not otherwise regulated
Sezzle was contacted by FinTech Futures for comment but had not replied at the time of publication.