The California Department of Business Oversight (CDBO) recently concluded that the point of sale consumer financing programs offered by Sezzle, Inc., and another, unnamed party constituted making loans for purposes of the California Financing Law (CFL). A number of payment providers and technology companies have been developing innovative payment options, including consumer financing options, that are facilitated by advances in technology and mobile connectivity. Some market participants have structured their products such that a license should generally not be required under state law. The CDBO’s actions, however, may require companies to revisit that analysis and consider their licensing obligations.
Background. How consumers choose to pay for retail products continues to rapidly evolve with changing technology. This expansion of payment options through the use of technology has found its way to point of sale installment payment plans.
One type of offering allows consumers to split a payment into four or fewer installment payments with no interest charges — a structure that falls outside of disclosure obligations under the Truth in Lending Act and many state laws. The programs may also be structured as credit sales initially made by a merchant and then sold to a finance company rather than as direct loans to a consumer. This “retail installment sale” structure generally results in fewer state licensing obligations. The CDBO’s recent actions concern this type of structure.