New York unveiled the nation's first comprehensive regulatory framework for BNPL lenders, stepping in on a state level to fill the regulatory gap that the Consumer Financial Protection Bureau left after their recent retreat from regulating the space.
New York Governor Kathy Hochul said:
“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. 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.”
The new regulation would:
- Require mandatory licensing for all BNPL lenders, with separate permissions for interest-free and interest-bearing loans.
- Set strict fee caps on interest rates, origination charges, and late fees.
- Ban convenience fees, which BNPL lenders impose to make payments by certain methods like check.
- Require multilingual disclosures, so borrowers who don't read English can understand what they're getting themselves into.
- Require that periodic statements be sent for each billing cycle outlining balance due and interest charged.
- Require income-based ability-to-repay assessments, of which the requirements are disclosed to borrowers.
- Impose stronger consumer protections for disputes and data privacy.
- Ban “Social Underwriting,” which is where lenders use the creditworthiness of a borrower's social network to determine their own loan eligibility.
What's the status of these new rules?
An initial comment period for the draft rules ends March 5. From there, the rules would need to be published in the State Register for a 60-day formal comment period, which may lead to amendments. If everything goes through, the BNPL Act would become effective 180 days after the regulation is adopted.
If passed, companies already operating as BNPL lenders in New York when the regulations take effect must apply for a license within 45 days and may continue operating under a provisional license until their application is approved or denied.