New York Proposes Buy Now Pay Later Legislation | Practical Law

New York Proposes Buy Now Pay Later Legislation | Practical Law

The governor of New York proposed Buy Now Pay Later (BNPL) legislation in the 2025 fiscal year executive budget. The proposed legislation would authorize the New York Department of Financial Services (NYDFS) to regulate companies who offer BNPL loans in the state.

New York Proposes Buy Now Pay Later Legislation

Practical Law Legal Update w-042-1726 (Approx. 4 pages)

New York Proposes Buy Now Pay Later Legislation

by Practical Law Finance
Published on 01 Feb 2024USA (National/Federal)
The governor of New York proposed Buy Now Pay Later (BNPL) legislation in the 2025 fiscal year executive budget. The proposed legislation would authorize the New York Department of Financial Services (NYDFS) to regulate companies who offer BNPL loans in the state.
On January 16, 2024, New York Governor Kathy Hochul proposed the Buy Now Pay Later Act as part of the state's Proposed 2024-2025 Transportation, Economic Development and Environmental Conservation Bill. The act would authorize the New York Department of Financial Services (NYDFS) to regulate companies who offer Buy Now Pay Later (BNPL) loans. The proposed legislation is part of the governor's Consumer Protection and Affordability Agenda announced in the 2024 State of the State (see Legal Update, New York Announces 2024 Consumer Protection and Affordability Agenda).
BNPL products allow consumers to finance their purchases of goods and services from merchants or retailers at the point of sale. The press release announcing the Consumer Protection and Affordability Agenda noted that New Yorkers are increasingly turning to BNPL loans as a low cost alternative to traditional credit products to pay for everyday and large purchases. Currently, New York requires BNPL providers to obtain a license under §340 of New York State Banking Law if they make consumer loans of $25,000 or less with annual percentage rates that exceed 16%, or if they purchase retail installment contracts from merchants that sell goods or services to their customers on credit.
The proposed legislation would:
  • Amend New York State Banking Law (N.Y. Banking Law §§ 1 to 9001) to add a new article 14-B which would grant the NYDFS authority to regulate the BNPL industry.
  • Define BNPL loans broadly as credit provided to a consumer in connection with the consumer's purchase of goods or services, other than a motor vehicle.
  • Require BNPL lenders to obtain a license and be subject to examination by the NYDFS.
  • Require BNPL lenders to ensure specific consumer protections including disclosures, ability to repay determinations, and accurate credit reporting.
  • Require BNPL lenders to establish fair, transparent, and not unduly burdensome processes for returns and dispute resolution.
  • Prohibit:
    • confessions of judgment;
    • false, misleading, or deceptive advertising; and
    • unfair, abusive, or excessive penalties or fees.
  • Impose penalties for violations, including:
    • a misdemeanor that could result in a fine of up to $500 and/or imprisonment for up to six months;
    • an undisclosed penalty paid to the state; and
    • voiding BNPL products offered without a license.
As described in a Memorandum in Support related to the proposed act, NYDFS would be authorized to regulate the BNPL industry with a focus on building stronger consumer protections around:
  • Disclosure requirements.
  • Dispute resolution.
  • Credit reporting standards.
  • Late fee limits.
  • Consumer data privacy.
NYDFS regulations would seek to curtail:
  • Dark patterns, such as burying key terms or junk fees and tricking consumers into sharing their data.
  • Debt accumulation.
  • Overextension, by requiring an analysis of the consumer's ability to repay using a defined methodology.
This bill would take effect one year after its enactment.