The Consumer Financial Protection Bureau (CFPB) is investigating EBay Inc. over the Bill Me Later loan program, which imitates a structure that high-interest lenders have used in the past to avoid state rules. Bill Me Later is a service of EBay's PayPal unit that uses Utah-based Comenity Capital Bank to make loans that are then purchased and managed by EBay, according to regulatory filings.
Federal law allows banks to lend in any state without being licensed there or complying with local interest rate caps. Payday lenders employed similar tactics to avoid state rules before regulators ended the practice, reminds attorney Margot Saunders of the National Consumer Law Center. With Bill Me Later, users can finance purchases in online markets run by Wal-Mart Stores Inc., The Walt Disney Co., and Apple Inc. Although there is an annual 19.99 percent rate, customers can avoid it by paying off the loan before the end of a six-month promotional period. Paying later incurs accumulated interest and fees that effectively raise that rate. The CFPB reported that these “deferred interest” products can be more expensive for consumers than a normal credit card.