New York State proposal aimed at reining in buy now, pay later loans

New York intends to propose new rules to protect shoppers using buy now, pay later services — a move lauded by consumer advocates as a critical step forward in a regulatory landscape lacking strong federal guidance.

It also comes as the popularity of buy now, pay later services surge across the country, with nearly 54 million Americans taking out at least one such loan in 2023, according to federal data. The credit, commonly called BNPL and often advertised as an interest-free loan, is usually paid in four installments. New York is the first state to establish specific legislation targeting the BNPL industry, experts said.

While BNPL loans have become very popular, they also carry "a lot of risks," including late fees, subscription fees and bounce payment fees, as well as easy access to debt that some people can’t afford, said Lauren Saunders, associate director and director of federal advocacy at the National Consumer Law Center.

Borrowers pay late

More than 4 in 10 BNPL borrowers said they paid late at least once in the past year, an increase from 34% the year before, according to a February survey published by LendingTree. The survey also found that 60% of BNPL users said they’ve held multiple loans at the same time.

And, according to a November Motley Fool Money report, economic pressures may be leading more Americans to rely on BNPL to buy essentials like groceries. 

People living paycheck to paycheck are "sometimes using this to stretch their purchasing, but they may be getting overextended and so the concern is that it can be a tool that can kind of help put you over the edge," said Chuck Bell, advocacy program director at Consumer Reports.

On Long Island, Bayville business owner Michael Carrozza said New York’s proposed BNPL regulations seem positive for consumers. He does not offer BNPL as an option at his store, but he’s used it himself in the past as a consumer.

"To me, it's just another form of credit and I think each person should really be well-informed before they get into it," he said.

The "draft" regulations, announced Monday, are part of the BNPL Act signed into law by Gov. Kathy Hochul in 2025. The act requires the licensing and supervision of BNPL lenders.

The new rules, which have not yet been formally proposed, include requirements for BNPL providers to:

• Clearly explain the terms of loans to borrowers.
• Allow consumers to choose how their personal data may be used.
• Maintain standards for resolving disputes and obtaining refunds similar to those required for credit cards.
• Limit interest to 16% per year, unless the lender is licensed in the state, in which case they may charge up to 24.99% interest.
• Limit late payment fees to $8.
• Clearly establish if loans will be reported to credit reporting agencies.
• Assess a consumer’s ability to pay back their loan with risk-based underwriting.
• Issue periodic statements for each billing cycle. 
• Provide consumers with limited liability for unauthorized purchases. 

State license required

Banks and other licensees already supervised by the Department of Financial Services require authorization, but not a BNPL license, to offer the loans, the state said. Except for federally chartered institutions, other BNPL lenders must obtain state licenses to operate in New York.

The potential rules are open to a 10-day pre-proposal comment period that began Monday. After the proposal is published in the State Register, the rules will be open to a 60-day public comment period.

"These new nation-leading regulations ensure that lenders know we have clear disclosures, limits on fees and real oversight so families don't get pushed into a debt spiral while big financial companies cash in," Hochul said in a news release.

In a contrast to federal efforts to regulate BNPL, New York’s legislation doesn’t just apply to pay-in-four loans. It also "applies to longer term installment financing that’s interest bearing," said Susan Seaman, a banking and finance attorney based in Ohio.

"One of the things that will have to be grappled with is, we’re trying to apply requirements that are written for open-end credit and credit cards to longer-term installment financing, which is a fundamentally different product and used by consumers in a different way," she said.

In May, the federal government walked back an interpretive rule that would have afforded BNPL consumers similar rights as credit card holders, including the ability to dispute charges and demand refunds after making returns, though advocates claim those rights remain.

"The CFPB has been gutted and we really need states to step up," Saunders said.

Lenders welcome clarity

BNPL lenders themselves have seemed to welcome the regulatory clarity established with the state legislation, although some industry stakeholders say the law needs further detail.

"We’re really appreciative of the department’s efforts to put forward a pragmatic regulatory framework," but the law and subsequent regulation as written includes a "very broad definition" of lenders and also needs to clearly establish what information would be disclosed in the underwriting process, said Ian P. Moloney, chief policy officer at industry group the American Fintech Council.

The Financial Technology Association similarly hopes the final version of the law "is appropriately tailored to the unique structure and risk profile of BNPL products to preserve innovation and access," said Penny Lee, president and CEO of the network.

A spokesperson for Klarna said the company has always included "strong safeguards" in its services and is "carefully reviewing" the proposed rules.

Affirm welcomes "thoughtful regulation" and supports "requiring sound, transaction-level underwriting, capping and regulating late fees like interest, mandating simple upfront disclosures of all terms and fees, and reporting all BNPL loans to credit bureaus," a spokesperson said.

New York’s legislation represents "an important step toward stronger consumer protections and consistent industry standards," the Affirm spokesperson added.

By Brianne Ledda

brianne.ledda@newsday.com@brianne_ledda

Brianne Ledda covers personal finance and affordability for Newsday. She previously covered Southold and Greenport for The Suffolk Times and is a graduate of Stony Brook University.