What happened

Shares of Affirm (AFRM -1.34%) traded as much as 7% lower early in Thursday's session in the wake of an announcement from the Consumer Financial Protection Bureau (CFPB) that it plans to more intensively regulate "buy now, pay later" (BNPL) companies.

However, as of 10:45 a.m. ET, Affirm had recouped those losses and was trading roughly 2.3% higher.

So what

The CFPB announced in a press release Thursday morning that it plans to issue new rules and guidance for BNPL companies to ensure that borrowers who use their services receive "many of the baseline protections" that credit card users do. It will also increase its oversight of the BNPL industry, and require the companies in it to undergo supervisory examinations.

"Buy Now, Pay Later is a rapidly growing type of loan that serves as a close substitute for credit cards," CFPB Director Rohit Chopra said in the statement. "We will be working to ensure that borrowers have similar protections, regardless of whether they use a credit card or a Buy Now, Pay Later loan."

In addition to the announcement, the CFPB also released the results of a report it conducted on the BNPL industry. The agency found that BNPL loan approval rates are climbing, with 73% of applicants approved in 2021, compared to 69% in 2020. Additionally, the CFPB found that late fees are becoming more common in the industry: 10.5% of BNPL users were charged a late fee in 2021, compared to less than 8% in 2020. Furthermore, the report found that more purchases made using BNPL loans are being returned, and that BNPL lenders' margins are declining.

The CFPB also called out three specific risks to consumers as a result of BNPL: having all loan payments on autopay, the use of consumer data to increase sales, and borrowers stretching their finances with BNPL products.

Now what

Sometimes, regulatory clarity can be a good thing, and perhaps the increased oversight coming for the BNPL industry will be beneficial. But I don't know if I exactly see this particular case that way for these BNPL companies, as they could be looking at higher costs to meet their new regulatory requirements.

Furthermore, stronger regulation around their products could lead to reduced gross merchandise volume -- and facilitating more consumer sales is a big way that fintech companies like Affirm make money.

That said, the reasons I'm choosing to avoid Affirm's stock right now are less about this CFPB announcement, and more due to the ways rising interest rates could continue to impact Affirm's business.