The state of New York has released a proposal for its new buy now, pay later rules, calling it a “new nation-leading” template for ensuring consumer protections.
The proposed regulations would codify a bill passed last year by the state’s legislature and signed by Gov. Kathy Hochul. The governor touted the proposal in a press release Monday and the New York Department of Financial Services posted the rules for BNPL lenders online Monday.
The industry objects to the rules, considering them overly burdensome, while consumer advocates see New York’s BNPL regulations as a possible inspiration for regulatory changes in other states.
The buy now, pay later bill, which Hochul signed on May 9, provided a regulatory framework for the oversight, but left implementation largely to the Department of Financial Services.
The rules would — among other things — establish a licensing regime for providers of short-term installment loans, prohibit excessive fees, compel companies to tell consumers if their loans will be reported to credit bureaus and require BNPL firms to establish timely rules for consumer disputes.
The proposal also seeks to tamp down on certain consumer costs, such as convenience fees, and requires companies to protect consumer privacy.
BNPL providers would also be forced to prominently display the methods by which consumers can contact customer service, and customer service lines would have to be open at least 10 hours a day.
The proposal is subject to a 10-day, pre-proposal comment period that started Monday and is more limited in terms of procedural weight, before they are formally proposed in the New York state register. After they are proposed, a 60-day public comment period ensues. The regulations would take effect 180 days after they are adopted, with a transition period for BNPL lenders already offering BNPL services in the state.
A spokesperson for the National Consumer Law Center declined to comment on the proposal, but referred to a Feb. 12 statement the group released touting New York's law as a template for other state legislatures.
“State protections and oversight for BNPL loans are especially important now that the Consumer Financial Protection Bureau has been gutted and federal protections are in question," the group's director of federal advocacy, Lauren Saunders, said in the statement, referring to the Trump administration's steep budget cuts at the regulatory agency.
Another advocacy group, Consumer Reports, also praised the state’s move. The regulations provide important protections for New Yorkers who use buy now, pay later services, said Chuck Bell, a special projects director at the organization.
"These proposed rules would help make sure that lenders don't extend credit that consumers cannot afford to repay, charge only reasonable fees, protect data privacy, and treat borrowers fairly when they dispute charges and seek refunds," he said in an emailed statement.
Prominent fintech lobbying groups have said New York's law treats buy now, pay later transactions too much like credit card purchases.
The Financial Technology Association on Monday released a statement that said the group hopes the final rule will be appropriately tailored to the unique structure and risk profile of buy now, pay later services.
"Buy now, pay later is a trusted financial tool that millions of New Yorkers rely on to purchase items with no interest, clear repayment terms, and needed flexibility," the statement said. “Responsible innovation and consumer protection must go hand in hand.”
BNPL companies are different from credit card networks because they don’t charge interest on all loans, an association spokesperson, Miranda Margowski, said in a May interview.
"The legislation has a fundamental misunderstanding of buy now, pay later products," she said.
