New York has included a “Buy-Now-Pay-Later Act” as part of its broader budget legislation for the 2025-2026 fiscal year. Encapsulated in Article 14-B, the Act aims to regulate the burgeoning market of buy-now-pay-later (BNPL) lenders but has raised concerns by its overreach and seemingly unequal treatment of national and state banks.
Defining Buy-Now-Pay-Later Loans
Under the law, a “buy-now-pay-later loan” is defined to include any “closed-end credit provided to a consumer with such consumer’s particular purchase of goods and/or services” with limited exceptions for motor vehicles and certain credit sales. While this definition covers “pay in 4” and similar programs most associated with BNPL, its breadth arguably covers numerous credit transactions beyond that scope and may catch financial institutions unaware.
Licensing Requirements and Exemptions for National Banks
Under the law, all “buy now pay later lenders” must comply with the law and obtain a license or, if already authorized to lend under New York’s laws, seek approval from the Department of Financial Services (DFS). But, oddly, it specifically excludes from its purview only a “national bank, federal savings bank, federal savings and loan association, federal credit union, federal trust company, or foreign banking corporation licensed by the comptroller of the currency to transact business in” New York. This means that state-chartered banks (or similar entities) —including New York state-chartered banks — must comply with the law’s requirements, but national banks do not.
Interest Rates and Consumer Protections
The law also seeks to cap interest rates on certain BNPL loans in line with New York’s existing limits and requires the Superintendent of the DFS to establish maximum fee limits as well as specific limits for certain fees like origination and late fees. Specifically, the Act states that no BNPL lender shall charge, contract for, or otherwise receive from a consumer any interest, discount, or other consideration, directly or indirectly, greater than New York’s existing interest rate limits.
Moreover, the law imposes several additional substantive, disclosure and record retention requirements, including dispute and unauthorized use rights that apply to credit cards under the Truth in Lending Act and Regulation Z. This is in stark contrast to recent events at the federal level, where, as discussed here, the CFPB announced following legal challenges that it would not enforce its so called “BNPL Interpretive Rule” and subsequently rescinded it. (The BNPL Interpretive Rule similarly attempted to require BNPL providers to comply with certain provisions of Regulation Z only applicable to open-ended credit instruments like credit cards.)
Regulatory Oversight
The law also grants the Superintendent broad authority to examine BNPL lenders and enforce compliance. Sections 742 and 748 empower the Superintendent to conduct investigations and impose penalties for violations, ensuring adherence to established standards.
Our Take
With the CFPB’s BNPL Interpretive Rule rescinded, New York’s legislation represents one of the first of potentially many attempts by states to step into the perceived void left by the change in administration at the CFPB. But, like the CFPB’s original rule, this legislation is ill-conceived and attempts to fit a square peg (i.e., a closed-end credit product) into a round hole (i.e., consumer protection meant for open-ended credit cards) that is likely to create more problems than it solves.
Moreover, New York’s choice to draw a distinction between state-chartered and national banks upsets its longstanding norm of treating all banks equally, regardless of their charter. Laws targeting state-chartered banks — but not national banks — have increased in recent years (e.g., Colorado’s attempt to opt-out of “DIDMCA”), and state-chartered banks should continue to carefully monitor for developments of this nature.
