What happened
Shares of the buy now, pay later (BNPL) company Affirm Holdings (AFRM +3.81%) were nearly 15% lower in the final hour of trading, as tech and growth stocks continued to come under pressure and as regulators began to look deeper into the BNPL space. The shares closed Thursday down more than 10.5%
So what
Tech and growth stocks have had a tough month, as investors worry about higher inflation and likely interest rate hikes next year, which are never good for growth stocks. The market appeared to be recovering after the Federal Open Market Committee (FOMC) wrapped up its final meeting of the year yesterday. Following the meeting, the FOMC announced that it will speed up the tapering of its bond purchases, and most members of the committee expect to see three rate hikes next year.
But the market once again sold off tech and growth today, as the Bank of England raised interest rates, and investors continued to worry about inflation.
Image source: Getty Images.
More specific to Affirm, the Consumer Financial Protection Bureau (CFPB) asked the company, along with several others, to provide information on the BNPL loans they were issuing.
"Buy now, pay later is the new version of the old layaway plan, but with modern, faster twists where the consumer gets the product immediately but gets the debt immediately, too," CFPB Director Rohit Chopra said in a statement. Chopra said that his agency has ordered Affirm, Afterpay (AFTP.Y +0.00%), Klarna, PayPal (PYPL 0.68%), and Zip (ZIZT.F +13.37%) to submit information so that it can report to the public about industry practices and risks.
The order comes after analysts at Mizuho recently said they estimated that more than half of Affirm users who earn less than $75,000 have missed at least one payment.
Now what
Rising rates increase the cost of debt for borrowers, so if this many borrowers at Affirm are missing payments with rates this low, then it's hard to believe loans issued next year at higher rates would fare better.
Affirm is an innovative company, but it trades at too high a valuation right now, given its lack of profitability and the associated risk.
