March 17 (Reuters) - Australia's buy-now-pay-later firm Afterpay Ltd will refund late fees paid by customers in California for loans, which were deemed "illegal" by the U.S. state's financial regulator, the two sides said as part of a settlement.
The company will pay A$1.5 million ($916,350), of which $905,000 will go to about 640,000 consumers in California who paid late fees and the rest will be administrative fees.
The settlement is for loans issued without a California financing law licence. It was granted to Afterpay in November last year.
The increasingly popular buy-now-pay-later space has been facing increased regulatory scrutiny, and Afterpay, considered by many as the sector's bellwether, has faced the brunt of it back home in Australia too.
Earlier this year, California's financial regulator, the Department of Business Oversight (DBO), had also rapped Minneapolis-based and Australia-listed Sezzle Inc for giving out credit without a license.
"While Afterpay does not believe such an arrangement required a license from the DBO or illegal, Afterpay has agreed to conduct its operations under the DBO license as a part of this settlement," a company spokeswoman said in an email to Reuters.
Buy-now-pay-later firms have gained traction, mainly with millennials, by giving an option to buy things through interest-free instalments and helping them sidestep tougher rules related to taking a credit card or loan.
$1 = 1.6399 Australian dollars Reporting by Anushka Trivedi and Nikhil Kurian Nainan in Bengaluru; Editing by Arun Koyyur