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.
Sidley Austin LLP provides this information as a service to clients and other friends for educational purposes only. It should not be construed or relied on as legal advice or to create a lawyer-client relationship. Readers should not act upon this information without seeking advice from professional advisers. In addition, this information was not intended or written to be used, and cannot be used, by any person for the purpose of avoiding any U.S. federal, state or local tax penalties that may be imposed on such person.
Attorney Advertising—Sidley Austin LLP, One South Dearborn, Chicago, IL 60603. +1 312 853 7000. Sidley and Sidley Austin refer to Sidley Austin LLP and affiliated partnerships, as explained at www.sidley.com/disclaimer.
© Sidley Austin LLP