Written by: Eric Bank
Edited by: Lillian Guevara-Castro
Reviewed by: Adam West
Key Takeaways
- The new state disclosure requirements are being opposed by groups in the fintech industry that claim the guidelines inaccurately portray their product.
- The law treats BNPL firms like credit card companies, sparking debate over whether that’s appropriate.
- The outcome could influence BNPL regulations in other states, potentially altering the product's legality throughout the nation.
New York state’s new Buy Now, Pay Later (BNPL) laws are under attack by fintech trade associations that claim the legislation unfairly holds the industry to the same standards as it does conventional card issuers.
In contention is the new requirement to provide terms available to consumers upfront just as credit card issuers are required to make the Schumer Box (a formatted disclosure) available.
The provisions, part of the state budget bills for 2025, were put in place to promote consumer protection and disclosure in the rapidly growing, loosely regulated industry.
Industry stakeholders in the fintech sector, however, insist the analogy does not fit. Groups including the Financial Technology Association (FTA) and the American Fintech Council insist that many consumer-facing BNPL solutions don’t charge interest and therefore shouldn’t be regulated as if they were revolving credit.
They argue that the proposal could create confusion for customers and impose compliance burdens on firms offering no-interest installment loans.
At the center of the controversy is whether to extend to BNPL arrangements, which typically cover purchases paid in installments over six weeks, the same disclosure requirements imposed on high-cost credit cards.
New York regulators claim they must do so to protect consumers against obscure terminology and surprise fees. Regulators, including the Consumer Financial Protection Bureau, have previously raised concerns that BNPL could lead to overspending and unadvertised late fees.
Another potential concern is the accumulation of “phantom debt” — the unreported BNPL obligations that aren’t reflected on consumer credit reports but still have an impact on consumer finances.
Subprime consumers may carry several accounts across multiple BNPL programs, contributing to concealed debt loads that lenders aren’t aware of and consumers can’t keep track of. That uncertainty troubles regulators and lenders alike, particularly as delinquencies grow and economic pressures build.
BNPL players and their defenders argue that their product is fundamentally different. Credit cards, they point out, often allow rollovers and compound interest, to which most BNPL participants take issue.
Klarna, Afterpay, and Affirm argue their services assist customers in budgeting and offer consumers more, not fewer, options. Industry proponents say the Schumer Box was created for a very different type of credit product — and applying it to BNPL could end up confusing users rather than helping them.
A Defining Moment
Others see the New York rule as a minimum disclosure requirement, but fintech companies are worried it is setting a precedent. New York can be followed by other states if it can get other players in the BNPL space to model their disclosure after that of the credit card.
That could stifle innovation by creating a costly and inconsistent regulatory landscape across the country. The broader BNPL market has exploded in growth over the last two to three years, attracting younger customers and consumers who have limited access to conventional credit.
With minimal start-up costs and scant regulation, BNPL was the darling of both consumers and retailers during the pandemic.
But the model has come under criticism, primarily because of consumer risk and data use. Federal regulators have yet to produce detailed BNPL guidelines, leaving it to states like New York to fill the void.
Fintech firms have concerns that New York will set a precedent in BNPL regulation for other states to follow.
Last month, New York added to budget legislation calling on the state Department of Financial Services to register BNPL companies. Payment terms, charges, and delinquency consequences are to be disclosed clearly and upfront, under the legislation.
The law doesn’t ban BNPL, but it attempts to define it clearly enough to support more consistent oversight.
What Is the Future for BNPL Players?
Much depends on whether other states take New York’s lead. California is already considering regulation of BNPL, and there is mounting national interest. If there is no single standard, then regulatory fragmentation, such as that which payday lenders have seen over the past decade, is the potential result.
For the time being, providers are paying close attention. Some will voluntarily modify their disclosures to keep pace with shifting expectations, others will resist changes they view as branding and product misdescription.
Either way, New York’s move may usher the BNPL industry into a new phase of legal definition — and potentially tighter controls. If that brings greater stability, some see it as a worthwhile tradeoff.
State Sen. James Sanders, (D-Queens), said “ We are not trying to put a stop to new financial technologies and new ways of doing things. We think that there’s room in New York for them — as long as they understand that in New York, we have rules.”
