A bill related to buy now, pay later payments was introduced in the New York legislature last Friday and may serve as an alternative to the proposal made earlier this year by Gov. Kathy Hochul in her proposed budget.
The bill is the latest attempt at installing some oversight parameters and consumer guardrails on BNPL and came from Democratic Assemblymember Pamela Hunter, who chairs the banks committee.
The assembly bill counters the governor’s proposal, said Jacob Sherretts, who is Hunter’s policy chief. “There were a number of concerns from stakeholders and members of the assembly,” he said in an interview this week.
New York is one of the first states to consider BNPL regulation. The proposal from Hunter is likely part of legislative give-and-take between the Democratic governor and the legislature, which is controlled by the same party, as they seek to wrap up work on the governor’s proposed budget by April 1.
In contrast to the governor’s proposal in January, the House bill appears to have a narrower definition of BNPL providers; prohibits consumer fees related to BNPL services; and discourages reporting of BNPL activity to consumer credit bureaus, according to Eamonn Moran, who is senior counsel with the firm Norton Rose Fulbright.
“The assembly bill is much more restrictive in terms of profit-making,” Moran said in an interview on Monday. He said he represents some clients that are participants in the BNPL market, declining to provide names.
The BNPL provision may have proved more controversial than the governor’s office expected, as she looks to reach a consensus with state lawmakers on her budget proposal. A spokesperson for the governor declined to comment. While Hunter has two cosponsors for the bill, it doesn’t appear to have a Senate companion bill.
In January, Hochul proposed legislation to regulate the popular 21st-century installment loan financing as part of her fiscal year 2025 budget proposal. Hochul sought to require BNPL providers to obtain a license to operate in New York, and have the state’s Department of Financial Services put stronger regulations around the industry. In New York, a governor can introduce legislation by way of the executive budget.
Now, legislators can debate the best oversight for BNPL separate from the governor’s budget proposal.
Hochul’s proposed legislation would amend the state’s banking law to give the department licensing and regulatory authority over BNPL providers and loans. That would enable the state to regulate the industry “with a focus on building stronger consumer protections around disclosure requirements, dispute resolution, credit reporting standards, late fee limits, and consumer data privacy,” according to a memorandum in support of the legislation.
New York’s Department of Financial Services also would have authority to review guidelines to “curtail dark patterns, debt accumulation, and overextension” under Hochul’s proposal, the memorandum noted.
BNPL is typically pitched by providers as an interest-free, pay-in-4 installment payment plan that lets consumers make four payments over four to six weeks after taking possession of a purchased item or service. Increasingly, some BNPL providers are also selling interest-based installment services.
Consumers can access BNPL on apps, but it’s also showing up more frequently on store point-of-sale systems. Consumers make payments with debit or credit cards, or sometimes through an auto-pay function tied to their bank account.
As consumers turn to BNPL loans for everyday purchases, federal and state lawmakers and regulators nationwide have been increasingly interested in making sure consumers are protected, particularly given the risk of debt accumulation.
The Consumer Financial Protection Bureau has threatened to weigh in on BNPL as well, and some Congress members have been eager to see the federal agency do so in the interest of protecting consumers.
The CFPB has been uneasy about consumers potentially over-extending themselves with the BNPL option by “credit stacking,” or making purchases using multiple BNPL tools. That apprehension is partly driven by limited reporting to credit bureaus at this time.
BNPL use surged tenfold between 2019 and 2021, the CFPB said in a 2022 report after it requested data from the biggest BNPL providers in 2021. The agency in late 2021 queried the biggest BNPL providers, including Block’s Afterpay, rival Affirm, the Swedish BNPL giant Klarna, digital pioneer PayPal and Zip. Since then, tech behemoth Apple has also entered the BNPL market.
Meanwhile, BNPL providers are also coming under more pressure from their investors to finally turn a profit after years of losses. Some BNPL players, including Klarna and Affirm have cut employees over the past two years as the economic climate worsened.
