Afterpay and Zip plunge as US regulators probe into BNPL sector

The Consumer Financial Protection Bureau (CFPB) issued a series of orders to “collect information on the risks and benefits of these fast-growing loans” from leading BNPL companies Affirm, Afterpay (ASX: APT), Zip Co (ASX: Z1P), Klarna and PayPal. 

Major falls by Affirm and Block dragged local BNPL stocks lower.

For example, Afterpay nosedived -9% to $81.43 at noon, and Zip plunged -8.3% to an 18-month low of $4.01. This means that Zip shares are almost lower than before it fully entered the US market via its Quadpay acquisition in June 2020. 

The CFPB expressed concerns about “accumulating debt, regulatory arbitrage, and data harvesting” in a rapidly evolving, technology enabled consumer credit market. 

As a result, CFPB Director Rohit Chopra has ordered Affirm, Afterpay, Klarna, PayPal, and Zip to submit information so the bureau can report to the public about industry practices and risks.

A bloodbath for ASX BNPL stocks 

News of the CFPB investigation is likely to resonate strongly with Afterpay and Zip shareholders, especially given the increasing importance of US earnings.

North America accounted for 49% of Afterpay's Group sales in FY21, up from 36% a year ago. The narrative is very much the same for Zip, where the US contributed 44.5% to overall transaction volumes in its November update.

Other notable losers include Sezzle Inc (ASX: SZL) and Openpay (ASX: OPY) which are down -5.3% and -8.9% respectively.