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Sezzle share price: what drove the 18% sell-off today

We examine the catalyst behind Sezzle’s significant share price decline today, January 2.

Sezzle share price in focus Source: Bloomberg

Sezzle (ASX: SZL) investors are likely not happy with how the New Year has played out thus far.

Investors dumped the stock this morning as news began to circulate that California’s Department of Business (DBO) had rejected the company’s application for a lending license.

This announcement was officially released on December 30, Californian time. Sezzle released an offical company statment regarding the DBO's decision at 9:55 AEDT, this morning.

By 14:46 AEDT the Sezzle share price had fallen as much as 18%.

Other buy now pay later companies – such as Afterpay (ASX: APT), which also have operations in the US – were not impacted by this news. In fact, APT saw its share price rally as much as 4.37% during today's session.

Speaking of their decision to not grant Sezzle a lending license, the DBO commented that:

‘Sezzle is one of a number of companies now offering unregulated, point-of-sale financing to Californians.’

The regulator did not name the other companies offering these services.

The DBO ultimately contended, after a review of Sezzle's 'product and information [...] provided in connection with its application, [that] Sezzle was making unregulated loans to California consumers.'

Looking at the nature these point-of-sales financing arrangements, the DBO further noted that:

‘The consumer, merchant, and third-party financer treat the transactions like loans, despite contradictory language in the applicable contracts.’

Sezzle share price: the response at a glance

Sezzle was quick to issue a response to the DBO’s official statement this morning, noting that:

'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.’

At the end of the day, Sezzle requires the DBO’s go-ahead to make loans in the state of California.

Looking at Sezzle’s ambitions and a positive case study example, it was further pointed out that:

'Sezzle's objective is to obtain the loan license for the purposes of removing those merchants from the financing process. The DBO approved a competition operating under similar a sales finance company model between the dates of our application and their public statement, so we believe there is a path to resolution.'

Even with today's rejection at the hands of the DBO, the company reassured investors that Sezzle:

'Continues to operate in the state of California in partnership with the Company's retailers who originate retail instalment sales contracts and then subsequently assigns those contracts to Sezzle in order for Sezzle to service the payment processing.'

The Sezzle (ASX: SZL) share price currently trades at $1.70 per share – down significantly from the stock’s $2.860 high achieved in 2019.

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