(Reuters) - A California state agency announced its intention to reject buy-now-pay-later company Sezzle Inc's (AX:SZL) application for a lending license in the state, sending its shares to a record low on Thursday. The California Department of Business Oversight (DBO), which oversees and regulates financial service providers in the state, issued a statement saying it would deny Sezzle's application.
The company offers U.S. consumers interest-free installment loans of small amounts, targeting younger customers who may not have access to credit cards to purchase products online from participating merchants.
Sezzle works with retailers or merchants who originate credit-sale contracts and then assign those contracts to Sezzle for it to service the payment processing. The company says the buying of those contracts does not constitute loans under state law.
The company said that in order to achieve its goal of eliminating the merchants from the financing process, it was required to apply for a lending license under California Financing Law.
In its statement, DBO said Sezzle's purchasing of credit-sale contracts between merchants and consumers constituted providing loans, for which the company should have already had a lending license.
DBO added that given that Sezzle had violated the California Financing Law by engaging as a lender without the license, its application for the license would now be denied.
"We plan to continue to work with the DBO to correct any issues so that we can proceed with our plans to develop a loan product there," the company said in response.
Sezzle added it believed there was a path to resolution, saying a competitor working with a similar model had obtained a license from the department between the dates of Sezzle's application and DBO's statement.
Shares of the company slipped 18.6% to hit their lowest level since being listed on the Australian Stock Exchange in July 2019.