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Installment Payments: How Millennials Are Shopping

Millennials don’t own or use credit cards nearly as much as past generations. According to a survey conducted by Bankrate last year, only 33 percent of adults between the ages of 18 and 29 have a credit card. Having seen the aftermath of the financial crisis, millennials are wary of the high-interest rates and open-ended nature of credit cards. To help retailers capture that lucrative market, financial technology—or Fintech—companies have begun offering a wider variety of online payment options that divide purchases into four equal, interest-free installments.

Fintech companies like Affirm, Afterpay, and QuadPay offer installment-payment plans to target millennials and other underbanked customers who want greater flexibility to make larger purchases and pay over time. So far, it appears to be working.

The new zero-interest, installment-payment products are designed to avoid most federal and state credit-related regulations, such as the federal Truth in Lending Act (TILA) and state retail installment sales acts (RISAs). The products are, however, still required to comply with fair lending (anti-discrimination) laws and consumer protection laws that prohibit unfair, deceptive, and abusive acts and practices (UDAAPs).

The reason these products can offer zero interest and must break-up purchases into four or fewer installments is because TILA and its implementing regulation, Regulation Z, cover credit extended to consumers for personal, family, or household purposes only if the credit carries a finance charge or a written agreement requiring more than four installment payments. Many state RISAs are modeled after TILA and limit coverage to agreements with consumers that charge interest and/or have more than four installment payments.

Compliance with these federal and state laws falls largely to the Fintech companies that offer the products. But retailers should proceed with caution. It is critical to analyze these regulatory issues before offering new payment products. Each product—and every state law—is different. Retailers can have collateral legal liability, suffer reputational damage, or experience operational disruption if they do business with Fintech companies that don’t comply with these complex and shifting laws.

These new payment products typically charge late fees and may result in debt collection or credit reporting, which are regulated by federal and state laws. In addition, some states have regulatory requirements in which retailers have certain legal obligations because retailers are typically the parties originating the installment contracts with consumers.

It is important that retailers be aware of the regulatory and reputational risks associated with these increasingly popular new payment products and address any issues before they become a problem. The Retail Group at Ballard Spahr has members who focus on consumer financial services. They often advise clients about federal and state laws to mitigate regulatory risks and identify compliance obligations.

Copyright © by Ballard Spahr LLPNational Law Review, Volume IX, Number 87


About this Author

James Kim, Ballard Spahr Law Firm, Los Angeles, Financial Law Litigation Attorney
Of Counsel

Mr. Kim advises companies and individuals in matters involving financial regulation and litigation, and the myriad of federal consumer financial laws, such as Title X of Dodd-Frank (UDAAP), TILA, RESPA, EFTA, and the FDCPA. He has represented clients in examinations and investigations with the Consumer Financial Protection Bureau (CFPB), Federal Deposit Insurance Corporation (FDIC), Office of the Comptroller of the Currency (OCC), U.S. Department of Justice (DOJ), U.S. Securities and Exchange Commission (SEC), and various state and local agencies. His practice focuses on...

David Landau Retail Attorney

David H. Landau is the Practice Leader of the firm's Retail and Fashion Group. He represents clients both in the United States and abroad in industries including fashion and retail, financial services, technology, and media and entertainment. He focuses on mergers and acquisitions, joint ventures, equity and debt financings, and other transactions for public and private companies and private equity funds. He routinely represents issuers and investment banks in equity offerings, high-yield debt offerings, and investment-grade debt offerings. He also advises on securities regulatory and general corporate matters.

Representative Matters

  • Represented PVH Corp. in the sale of its G.H. Bass & Co. division to G-III Apparel Group, Ltd.

  • Represented PVH Corp. in the sale of assets of its CHAPS business to Ralph Lauren Corporation.

  • Represented Tommy Hilfiger B.V. in the formation and negotiation of a joint venture for all its businesses in Brazil.

  • Represented a Special Committee of independent directors of Covansys Corporation’s Board of Directors in connection with the company’s acquisition by Computer Sciences Corporation.

  • Represented Bank of America Merrill Lynch as lead underwriter for bond offerings by the Province of Nova Scotia.

  • Represented iStar Financial Inc. in its purchase of a substantial interest in Oak Hill Advisors and its affiliates.

  • Represented iStar Financial Inc. in its sale of its interests in Oak Hill Advisors and its affiliates.

  • Represented PVH Corp. in numerous debt and equity securities offerings.

  • Represented PVH Corp. in its acquisition of the assets of Superba, Inc.

  • Represented PVH Corp. in its acquisition of Calvin Klein, Inc.

  • Represented Merrimac Industries, Inc. in its merger with Crane Co.

  • Represented Ariel Holdings Ltd. in its sale of Valiant Insurance Group, Inc.