Zip and Four Technologies revamped their buy now, pay later strategies in Maryland after the state cited them for operating without the correct licenses.

In May, the state fined Four Technologies for offering BNPL services in violation of the state’s lending laws. And the Australian BNPL company Zip stopped operating in Maryland because it didn’t have the proper credentials to work in the state.

Maryland’s rules are complex — while some buy now, pay later companies might be exempt from licensing requirements, other providers generally need a consumer lending license to offer their services in Maryland, Antonio Salazar, the state’s commissioner of financial regulation, explained in an email.

“BNPLs are typically engaged in the business of making loans or extensions of credit,”  Salazar said by email.

Zip is currently not operating in Maryland because it lacks such a license, the company’s Group CEO Cynthia Scott said in a year-end earnings call on Aug. 27.

“Zip is working to satisfy regulatory requirements in Maryland and has temporarily paused its checkout services to customers located in Maryland whilst it does so,” a company spokesperson said in an email. “While we do not have an exact timeline, our goal is to resume serving customers in Maryland as quickly as possible.”

Zip’s move in Maryland only affects customers in that state and not in other states, the spokesperson said.

Both Zip and Maryland’s office of financial regulation declined to say when and how the company learned it did not have the proper license.

“We’re in the process of getting [our product] compliant before we turn it back on,” Scott said during the earnings call.

Miami-based Four Technologies paid a $45,000 fine and agreed to return $184,000 to more than 2,000 Marylanders, the state’s Office of Financial Regulation said in a May 16 news release.

“The Office of Financial Regulation determined that BNPL is a loan under Maryland law, and therefore any companies using this financing approach need to be licensed as a loan provider,” the release says. “Four did not have the required licensing to do these transactions with Maryland consumers.”

Four Technologies has since acquired the consumer lending license that it needs to operate in Maryland, according to the National Multistate Licensing System and Registry.

A representative of Four Technologies did not respond to a request for comment. 

Maryland’s Office of Financial Regulation, which is a division of the Department of Labor, issues those licenses.

“We look at every license application to determine whether the applicant is selecting the correct license,” Salazar said in response to emailed questions. “If we learn that a business is operating under an incorrect license, we will take appropriate agency action to correct the license.”

Three other buy now, pay later companies — Affirm, Afterpay and Klarna — told Payments Dive that they operate in Maryland.

A spokesperson for the San Francisco-based Affirm said that it holds all necessary licenses in Maryland and “actively engages with regulators and policymakers as we advance our mission to improve lives, while ensuring compliance with applicable laws.”

Klarna does not need a license in Maryland because it does not charge late fees, a spokesperson for that company, John Craske, said by email.

An Afterpay spokesperson emailed Payments Dive a link to a web page listing the states where the company is licensed to operate. The list includes Maryland.

When asked if the state has taken enforcement actions against any companies other than Four Technologies, Salazar said he couldn’t comment on ongoing investigations, but he said he wasn’t aware of any other specific actions targeting BNPL providers.

A spokesperson for Maryland’s Office of Financial Regulation said Salazar declined to comment on Zip.

By Patrick Cooley on Sep 3, 2024
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