Licensing and Regulation on the Way for BNPL Providers in New York?

In a January 2 press conference, New York Governor Kathy Hochul introduced plans to enact a “sweeping consumer protection and affordability agenda,” that include what the Governor characterized as “nation-leading regulations” on the “Buy Now, Pay Later” (“BNPL”) financing industry. BNPL products typically allow consumers to finance their purchase of goods and services from merchants or retailers at the point of sale. The BNPL market has grown significantly in recent years, and there is significant variance within this market among the type and structure of BNPL financing products, whether the consumer is charged interest or fees, and the term and maturity of BNPL financing, among other items. Currently, New York requires BNPL providers to obtain a license under the New York Banking Law if they make consumer loans of $25,000 or less with annual percentage rates that exceed 16%, or if they purchase retail installment contracts from merchants that sell goods or services to their customers on credit.

During the press conference, Governor Hochul announced her plan to propose legislation that would, if enacted, require providers of BNPL financing to obtain a license, and would authorize the New York Department of Financial Services to issue regulations imposing compliance requirements on providers of BNPL financing. Although we cannot be certain about the content of any forthcoming legislation or regulations, Governor Hochul indicated that the contemplated BNPL legislation and regulations will “establish strong industry protections around disclosure requirements, dispute resolution and credit reporting standards, late fee limits, consumer data privacy, and guidelines to curtail dark patterns and debt accumulation and overextension.” Based on these remarks, it appears that—if New York follows the governor’s lead—BNPL providers may become subject to a new licensing requirement and significant substantive compliance requirements. We will continue to follow developments in New York related to the governor’s push to regulate BNPL financing.