On May 13, 2026, Pagaya Technologies Ltd. and affiliates filed a lawsuit in the U.S. District Court for the District of Delaware against Klarna, Inc. and Klarna Group plc, alleging misappropriation of intellectual property and trade secrets under the Defend Trade Secrets Act of 2016. KBRA, which rates two revolving asset‑backed securities (ABS) that use Pagaya’s credit decisioning model on Klarna’s platform, said the litigation is not expected to affect the current ratings.
Pagaya Files Trade‑Secrets Lawsuit Against Klarna
The complaint targets Klarna for allegedly using Pagaya’s proprietary credit‑decisioning technology in “buy now, pay later” (BNPL) point‑of‑sale consumer loans. The lawsuit was lodged in the District of Delaware and cites the Defend Trade Secrets Act of 2016. Pagaya, a NASDAQ‑listed fintech that applies AI‑driven credit analysis, claims that Klarna’s U.S. operating entity and its parent, Klarna Group plc, misappropriated trade secrets related to the model that underpins loan origination on the Klarna platform.
KBRA’s Rating Assessment and Servicing Agreements
KBRA maintains ratings on two revolving ABS transactions backed by BNPL loans originated through Pagaya’s model on Klarna’s platform: Pagaya Point of Sale Holdings Grantor Trust 2025‑1 (POSH 2025‑1) and Pagaya Point of Sale Holdings Grantor Trust 2025‑2 (POSH 2025‑2). In both deals, Klarna acts as servicer and platform/program administrator, with Nelnet Servicing, LLC as backup servicer. The revolving periods end on November 30, 2026 for POSH 2025‑1 and April 30, 2027 for POSH 2025‑2.
KBRA has been notified that Pagaya does not currently intend to terminate any servicing agreements with Klarna for these securitizations. Klarna has confirmed that the lawsuit will not affect its obligations under those agreements and will continue servicing the loans while engaged as servicer. KBRA’s analysis notes that if Pagaya stopped purchasing loans before the revolving periods conclude, the ABS could enter amortization earlier than scheduled. However, KBRA does not expect the litigation to impact the ratings at this time and will monitor developments.
Potential Effects on Revolving ABS Transactions
Should Pagaya cease loan purchases ahead of the scheduled revolving dates, the ABS could transition to amortization sooner, which would alter cash‑flow timing and tranche performance during the amortization phase. KBRA’s rating methodology evaluates tranche performance in both revolving and amortization periods, but the agency currently sees no rating impact from the lawsuit. The agency will continue to assess any material changes as the case progresses.
Key Takeaways
- Pagaya filed a trade‑secrets lawsuit against Klarna on May 13, 2026 in the District of Delaware, alleging misuse of its AI‑driven credit decisioning model.
- KBRA rates two revolving ABS transactions (POSH 2025‑1 and POSH 2025‑2) that rely on loans originated through Pagaya’s model on Klarna’s platform, with revolving periods ending November 30, 2026 and April 30, 2027.
- KBRA does not expect the lawsuit to affect the current ratings and notes that Klarna will continue servicing the loans under existing agreements.
FinanceInsyte's Take
The filing underscores the growing legal exposure of BNPL platforms that integrate third‑party AI models. While KBRA sees no immediate rating impact, executives should watch for any change in Pagaya’s loan‑purchase behavior, which could accelerate amortization and affect tranche performance. Ongoing monitoring of the litigation’s outcome will be essential for investors and lenders with exposure to these revolving ABS structures.
Source: Businesswire
