When Klarna partnered with DoorDash in March 2025 to let customers finance their takeout in four interest-free installments, the internet had one joke ready: C.D.O.s — Collateralized DoorDash Obligations. It was a nod to the collateralized debt obligations that helped tank the global economy in 2008, and it landed because the shoe fits. A company bundling risky consumer loans and selling them to investors while regulators look the other way is a story we've heard before.

But a new class action filed yesterday in the Northern District of Illinois says the 2008 comparison doesn't go far enough. The complaint describes a company that combined the originate-and-sell recklessness of pre-crisis Wall Street with the predatory lending tactics of a payday lender — an unholy financial product that would make Satan blush — and put it in your checkout cart. The Consumer Financial Protection Bureau spent years building the case against exactly this business model. The Trump administration shelved it. Now a contingency-fee class action firm is trying to pick up the pieces — but the tools available to private plaintiffs can't replace what the federal government walked away from.

Klarna Replaced Underwriting With the Right to Raid Your Bank Account

If you've never used Klarna — one of the largest buy-now-pay-later (BNPL) providers in the country — here's the short version: you download the app, give Klarna your name, address, and Social Security number, and Klarna gives you a "purchasing power" — a revolving credit limit you can use to buy things now and pay later. Klarna doesn't ask how much you earn. It doesn't check whether you can afford the debt. It runs a soft credit check that doesn't show up on your credit report, assigns you a spending limit, and lets you start buying.

When you make on-time payments, Klarna increases your limit. When you don't, it charges late fees. If your only option at checkout is Klarna's "Pay in 4" product, you must agree to automatic withdrawals from your bank account as a condition of getting the credit. You can't turn off autopay through the app.

No underwriting, revolving credit, and mandatory autopay. That's the business model. And according to a new class action complaint, it's illegal.

Clay v. Klarna Inc., No. 1:26-cv-03506 (N.D. Ill.), was filed March 30, 2026 by Stephan Zouras LLC. The complaint brings three claims: violations of the Electronic Fund Transfer Act (EFTA) for conditioning credit on mandatory autopay, violations of the Truth in Lending Act (TILA) for failing to assess consumers' ability to repay before extending open-end credit, and violations of the Illinois Consumer Fraud and Deceptive Business Practices Act. The plaintiffs aren't people who needed access to credit — they're people who needed their next paycheck to arrive before their next bill. Klarna didn't solve that problem. It monetized it.

The Payday Lending Playbook

The complaint draws an explicit comparison to the 2008 financial crisis — it calls Klarna's $6.5 billion deal to sell its Fair Financing receivables to Elliott Investment Management an "originate-and-sell" model that "eerily resembles the pre–Great Recession subprime mortgage strategy." That comparison works structurally: originate risky loans, offload risk to investors, keep originating.

But the consumer-level harm described in the complaint maps more cleanly onto payday lending. Both business models extend credit to financially vulnerable people without determining whether those people can actually repay. Both use aggressive collection mechanics — payday lenders use post-dated checks and ACH authorizations; Klarna uses mandatory autopay — that effectively let the lender jump the line ahead of rent, groceries, and utilities when the borrower's account runs low. Both create debt cycles: payday borrowers roll over loans; Klarna users get their purchasing power increased when they pay on time, which just means more debt capacity without any new assessment of ability to pay.

The CFPB's own research supports this comparison. BNPL users are disproportionately subprime or credit-invisible. They carry more debt across every category. They are more likely to use alternative financial services like payday loans and pawn loans. Nearly two-thirds of BNPL originations go to borrowers with subprime or deep-subprime credit scores. About 25% of BNPL users report having no savings at all.

The difference between Klarna and a payday lender isn't the population being served. It's the packaging.

The Trump Administration Walked Away. A Class Action Firm Picked It Up.

The most significant part of this lawsuit isn't the legal theories — it's the backstory of how it ended up in the hands of a contingency-fee class action firm instead of a federal regulator.

The Consumer Financial Protection Bureau spent years building the case that BNPL providers like Klarna are subject to existing consumer protection law. It opened a formal inquiry in December 2021, published extensive reports in 2022 and 2023 documenting the risks, and in May 2024 issued an interpretive rule concluding that BNPL providers using digital accounts function as "card issuers" under TILA and must comply with Regulation Z.

That rule was the culmination of a multi-year investigation that produced exactly the factual record this complaint now relies on. The CFPB laid the foundation. The complaint is just building on it.

Then the administration changed. In May 2025, the Trump CFPB announced it would not prioritize enforcement of the BNPL interpretive rule and signaled plans to rescind it entirely.

With federal enforcement off the table, seven state attorneys general — including Illinois — launched their own inquiry in December 2025, sending detailed information requests to Klarna and five other BNPL providers. That inquiry is ongoing.

And now this private class action steps into the gap. The plaintiffs' lawyers at Stephan Zouras are using the CFPB's own legal analysis — that Klarna's digital account is a "credit card" under TILA, that its purchasing power system is "open-end credit," that its autopay requirements violate EFTA — as the foundation for claims that a federal agency built but chose not to enforce.

But a class action can't actually fill the hole the Trump administration left. Whatever this case ultimately recovers will be a rounding error to a company that processed $105 billion in transactions last year. The CFPB could have imposed daily civil money penalties, ordered disgorgement of profits from unlawful conduct, and required Klarna to change its practices going forward. A private lawsuit can't do any of that. Even if this case succeeds, Klarna can write the check and keep the business model. And the next BNPL provider can keep running the same playbook until someone sues them too. The industry isn't just undeterred — it's emboldened.

That's how consumer protection works in 2026: the regulator builds the case, the Trump administration shelves it, and a Chicago class action firm picks it up on contingency. The plaintiffs might get paid. The behavior doesn't stop.

Table of Authorities

Complaint

• Clay v. Klarna Inc., No. 1:26-cv-03506 (N.D. Ill. filed Mar. 30, 2026), available here

Federal Statutes and Regulations

• Credit CARD Act, ability-to-repay requirement, 15 U.S.C. § 1665e
• EFTA compulsory use prohibition, 15 U.S.C. § 1693k(1)
• Regulation Z, ability-to-repay requirement, 12 C.F.R. § 1026.51(a)(1)(i)
• Regulation Z, open-end credit definition, 12 C.F.R. § 1026.2(a)(20)
• Regulation Z, credit card definition, 12 C.F.R. § 1026.2(a)(15)(i)
• Regulation E, compulsory use prohibition, 12 C.F.R. § 1005.10(e)(1)
• Illinois Consumer Fraud and Deceptive Business Practices Act, 815 ILCS 505/2

CFPB Reports and Rulemaking

• CFPB, Buy Now, Pay Later: Market Trends and Consumer Impacts (Sept. 2022), available here
• CFPB, Consumer Use of Buy Now, Pay Later: Insights from the CFPB Making Ends Meet Survey (Mar. 2023), available here
• CFPB, Consumer Use of Buy Now, Pay Later and Other Unsecured Debt (Jan. 2025), available here
• CFPB, Interpretive Rule, Use of Digital User Accounts to Access Buy Now, Pay Later Loans (May 22, 2024), available here
• CFPB, Announcement Regarding Enforcement Actions Related to Buy Now, Pay Later Loans (May 6, 2025), available here

AG Coalition Letters

• Comments of 21 State Attorneys General to CFPB, Docket No. CFPB-2022-0002 (Mar. 25, 2022), available here
• Letter from Multistate Coalition of State Attorneys General to Klarna, Re: Buy Now, Pay Later (Dec. 1, 2025), available here

SEC Filings

• Klarna Group plc, Registration Statement (Form F-1) (Mar. 14, 2025), available here

Klarna Press Releases

• Klarna, Klarna Powers Fair Financing Hypergrowth with $6.5bn US Agreement (Nov. 18, 2025), available here

Industry Research

• Jennifer Chien, Buy Now, Pay Later: Policy Measures to Mitigate Consumer Risks from Evolving Business Practices, Consumer Reports (July 20, 2023), available here
• Jennifer Chien, Buy Now, Pay Later: Policy Measures to Mitigate Consumer Risks from Evolving Business Practices, Consumer Reports (July 20, 2023), available here

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