News Summary
New York has enacted the ‘Buy-Now-Pay-Later Act,’ introducing regulations to ensure consumer protections in the expanding BNPL market. Lenders must now obtain licenses and adhere to interest rate caps and fee limits under state oversight. The law aims to prevent deceptive practices and safeguard borrowers, while also allowing for strict enforcement by state authorities. Exemptions apply to certain transactions, adding complexity to the regulatory landscape. The law takes effect 180 days post-rule issuance, signaling potential statewide changes in BNPL regulation.
Albany, New York – New York has officially enacted the “Buy-Now-Pay-Later Act” as part of its fiscal year budget for 2025-2026, introducing significant regulations to the rapidly growing buy-now-pay-later (BNPL) market. This new law aims to ensure consumer protections and to regulate BNPL lenders operating within the state.
Under this legislation, BNPL loans are defined as “closed-end credit provided to a consumer with such consumer’s particular purchase of goods and/or services,” with some specified exceptions. All BNPL lenders will now be required to obtain a license or seek approval from the Department of Financial Services (DFS) if they are already authorized to lend under the state’s existing laws. However, national banks and federal lending institutions are notably excluded from these requirements, which has raised concerns about a disparity between state-chartered banks and federally regulated entities.
The law sets forth important provisions regarding interest rates, capping them in accordance with New York’s existing limits. Furthermore, the DFS will establish maximum fee limits for charges such as origination and late fees. In addition to fee limitations, BNPL lenders will have to meet stringent substantive, disclosure, and record retention obligations that are on par with those required under the Truth in Lending Act for credit cards.
To enforce these regulations, the Superintendent of the DFS has been granted comprehensive authority to investigate BNPL lenders, ensuring compliance with the new law. This includes the power to impose penalties on lenders found in violation of the regulations. The law also prohibits misleading practices and defrauding borrowers, thereby bolstering consumer protections.
Previously, the federal Consumer Financial Protection Bureau (CFPB) had indicated intentions to rescind its BNPL Interpretive Rule, thereby opening the door for states like New York to impose their regulatory frameworks. Notably, some transactions involving motor vehicles and general credit sales by retailers are exempt from the provisions of this law and may be subject to different regulations.
Another critical aspect of the New York BNPL Act is the requirement for BNPL lenders to disclose key terms clearly and to comply with federal regulations in addition to the new state-specific disclosure standards. Offenders operating without a required license face misdemeanor charges and can incur fines up to $500 and potential imprisonment.
The implementation timeline for the law sets it to take effect 180 days after the DFS issues rules for enforcement. This process could extend further as legislative and regulatory frameworks are established. There remains some uncertainty regarding whether this extensive regulatory approach in New York will inspire similar legislation in other states.
By enforcing compliance across various BNPL products, New York’s law may complicate the operational landscape for BNPL lenders nationwide. As the BNPL market continues to evolve, the implications of this law will likely have lasting effects on both companies operating within New York and lenders operating in other states.
This new era of regulation comes at a time when the BNPL industry is under increasing scrutiny, and the implications of New York’s comprehensive framework may reverberate throughout the financial services sector.
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Author: STAFF HERE NEW YORK WRITER
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