New York Introduces Comprehensive BNPL Regulations Targeting Major Providers

New York Gov. Kathy Hochul announced Monday proposed rules to protect New Yorkers using Buy Now, Pay Later (BNPL) financing. The regulations put into practice a law signed by Hochul last year. 

These regulations establish a licensing and supervision framework for BNPL loan providers and protect consumers with required disclosures, dispute resolution standards, and limits on fees and data privacy protections, according to a press release from the New York State Department of Financial Services. 

“Too many New Yorkers have learned the hard way that some ‘Buy Now, Pay Later’ products are designed to trip them up with junk fees and overly burdensome fine print instead of helping them build a stable financial future,” Hochul said.

“These new nation-leading regulations ensure that lenders know we have clear disclosures, limits on fees and real oversight so families don’t get pushed into a debt spiral while big financial companies cash in.”

Balancing Consumer Protection With Innovation

A key aim of the new regulations is providing consumer protections for BNPL products. These products are increasingly popular but are not subject to the uniform rules for the disclosure of loan terms, data privacy, credit reporting, and fees that other consumer loans must follow.  

“It is our responsibility to ensure that innovation is paired with strong consumer protections, so that New Yorkers can safely and securely use new financial products,” said Kaitlin Asrow, New York State Department of Financial Services Acting Superintendent.

“This regulation will govern how Buy Now, Pay Later companies operate in the state, protecting New Yorkers from excessive fees and the misuse of personal data, while ensuring transparent loan terms and a fair process for resolving disputes.”

What Is Covered in the Proposed Regulations 

The draft regulations published on Monday establish a licensing and supervision framework for any company engaged in BNPL activity in the state of New York. The regulations prohibit excessive fees, such as convenience charges, and limit late fees and other types of penalty fees.

According to the regulations, lenders must make it clear to New York consumers if BNPL loans will be reported to credit reporting agencies. In addition, per the regulations, BNPL lenders must establish rules for the timely resolution of consumer disputes and protect consumer data from misuse.

Hochul signed the BNBL bill on May 9, and while it provided the regulatory framework for overseeing BNPL in New York, much of the implementation is up to the New York State Department of Financial Services, Payments Dive reports. 

What’s Next for BNPL Regulations in New York

The proposed BNPL regulation is subject to a 10-day pre-proposal comment period beginning Feb. 23. Next, a 60-day public comment period will begin once the proposed regulation is published in the State Register. 

The law and regulation will take effect 180 days after the rule is adopted, with an additional transitional period for those already offering BNPL loans in New York.

A BNPL Blueprint for Other States

According to the National Consumer Law Center, the New York regulations provide a framework for how other states can protect people from hidden charges, unaffordable debt, and other risks associated with BNPL financing. 

“Many Buy Now Pay Later users have subprime credit scores and high debt loads making BNPL loans risky, so it is critical that states step up to fill the gaps in consumer protections,” said Lauren Saunders, Associate Director and Director of Federal Advocacy at the National Consumer Law Center.  

“Strong protections for Buy Now, Pay Later loans are especially important as new forms of split payment loans spread beyond retail to rental housing, medical debt, debt settlement and other areas.”

Pushback From the Fintech Industry

In January, the Financial Technology Association issued a statement that emphasized that BNPL products should not be regulated like credit cards. But rather BNPL products are short-term installment plans typically lasting four to six weeks with fixed payment schedules and their own consumer protections, the statement said. 

Here are a few examples of consumer protections that BNPL providers already offer, according to the Financial Technology Association. If you miss a payment on a BNPL purchase, the BNPL provider will stop your ability to make new purchases until you catch up with payments.

BNPL providers also offer real-time tracking, payment reminders, and additional tools in the BNLP app.

Phil Goldfeder, Chief Executive Officer of the American Fintech Council, praised BNPL consumer protections and policies. 

“Responsible BNPL products are built on strong underwriting practices and transparent, easy-to-understand terms with no late fees, no hidden charges, and clear consumer protections,” Goldfeder said in a statement. 

The Bottom Line 

New York Gov. Kathy Hochul has announced proposed rules regarding BNPL financing. The regulations offer a licensing framework for BNPL loan providers and disclosures and protections for New York consumers using BNPL for their retail shopping. 

But leaders in the fintech industry say BNPL financing already comes with its own series of responsible consumer protections.