NY State Budget Provides ‘Supervisory Framework’ for BNPL

New York state introduced legislation to provide oversight to the pay later sector.

The legislation, part of Gov. Kathy Hochul’s new budget, is one of several new measures designed to bolster consumer protection, according to a Friday (May 9) press release.

“This budget is all about affordability — lowering costs and helping New Yorkers with the rising cost of living,” Hochul said in the release. “But our tax cuts, credits and rebates won’t be much help if bad actors are able to scam or mislead New Yorkers. These new laws are about fairness, transparency and accountability and will help consumers save money and spend it wisely.”

Pay later loans (also known as buy now, pay later or BNPL) are increasingly popular, but they present risks to consumers such as “overextension, inconsistent credit reporting, data exploitation and excessive fees,” the release said.

The state’s budget includes legislation to establish a licensing and supervision framework for BNPL providers. The legislation will include guardrails like disclosure requirements, dispute resolution standards, limits on fees and charges, and data privacy protections, per the release.

The American Fintech Council said that while many provisions in the legislation are in keeping with its own BNPL standards, other language could potentially limit consumer choice and reduce credit access.

“Unfortunately, the definitions of BNPL in this new law are not clear, possibly capturing additional products, and the language would improperly apply regulations designed specifically for credit cards to the emerging pay-over-time sector,” American Fintech Council CEO Phil Goldfeder told PYMNTS.

The state budget also includes legislation requiring businesses to make it easier for consumers to cancel subscriptions, and another measure that would require online retailers to post return and refund policies in a way that is easily accessible for shoppers.

Meanwhile, BNPL regulation is being rolled back at the federal level. Last week, the Consumer Financial Protection Bureau announced it would rescind its earlier proposal to treat pay later providers like credit card companies.

The PYMNTS Intelligence report “Cash Flow Shortages Drive Consumers’ BNPL Usage” found that financially-strapped consumers are more likely to turn to BNPL solutions than people feeling less financial pressure.

“Among consumers who frequently experience cash flow shortages, 8.9% reported using BNPL in the past 30 days,” PYMNTS wrote last week. “This figure is more than three times the 2.5% usage rate reported by consumers without such financial challenges during the same period.”