What happened

Shares of Carvana (CVNA 2.85%) slumped on Tuesday, falling as much as 7.7%. As of 11:39 a.m. ET today, the stock was still down 1.7%.

The catalyst that sent the online car seller lower was a report it has once again run afoul of state laws.

So what

Reports emerged late Monday that Carvana's license in Illinois has once again been suspended, effectively banning the company from selling cars in that state.

The enforcement division of the Illinois Secretary of State's office reinstated the suspension, which was previously issued back in May, charging that Carvana continues to issue temporary out-of-state license plates in Illinois, a practice that is illegal under state law. Regulators also allege that Carvana has consistently failed to process title and registration documents in a timely fashion, missing required deadlines. 

This is just the latest in a growing list of states that have cited Carvana for similar issues. Regulators in Pennsylvania have curtailed the company's ability to issue temporary permits, while Carvana has been on and off probation in a number of North Carolina counties and in Michigan.

Now what

Investors have other equally pressing concerns about the e-commerce platform. Carvana sells cars on credit to consumers, then bundles the debt in a process known as securitization. With interest rates rising and the economy edging slowly to recession, the days of low-cost borrowing are quickly fading.

In an effort to tame rising inflation, the Federal Reserve Bank has raised interest rates three times thus far in 2022, and the yields on government bonds are increasing. As once-cheap debt becomes more expensive, so too will the cost Carvana pays for the securitization of its loans. While the company has other options, its results will continue to be pinched as long as interest rates remain high.

Additionally, higher rates will weigh on consumers, most of whom will put off buying a new (or used) car in the face of higher costs and the ongoing economic uncertainty.

The combination of operational difficulties, rising costs, and slowing sales growth is a perfect storm for Carvana. Until there is clarity on some of the longer-term issues, investors might want to give it a pass -- at least for now.