After promising earlier this year to “establish nation-leading regulations for the Buy Now Pay Later loan industry,” New York Governor Kathy Hochul took a significant first step in that direction by including Buy Now Pay Later (“BNPL”) legislation in her Proposed 2024-2025 Transportation, Economic Development and Environmental Conservation (“TED”) Bill. The proposed legislation would add a new article 14-B to the banking law establishing a licensing requirement, limiting charges on BNPL products, and requiring an ability-to-repay analysis, among other prohibitions and requirements.
A “buy-now-pay-later loan” is broadly defined as “credit provided to a consumer in connection with such consumer’s particular purchase of goods and/or services, other than a motor vehicle[.]” The definition is not limited to BNPL products with a finance charge or a certain number of payments and, without more precise drafting, would seem to include non-BNPL products like credit cards. A “buy-now-pay-later lender” means “a person who offers buy-now-pay-later loans in this state,” including by “operating a platform, software, or system with which a consumer interacts and the primary purpose of which is to allow third parties to offer buy-now-pay-later loans[.]” A person who sells goods or services to consumers and extends credit to those consumers for those purchases is excluded from the definition of a “buy-now-pay-later lender.” The proposed legislation also excludes “any banking organization or foreign banking corporation licensed by the superintendent or the comptroller of the currency to transact business in this state, national bank, federal savings bank, federal savings and loan association, or federal credit union.” There is no specific exclusion for out-of-state state-licensed banks.
In addition to requiring licensure and examinations, the proposed legislation prohibits confessions of judgment and false, misleading, or deceptive advertisements. The proposed legislation also prohibits “unfair, abusive, or excessive” penalties or fees and requires clear and conspicuous disclosure of the terms and costs of BNPL products as well as the “process by which [consumers] can return and obtain refunds or credit for goods or services they have purchased with a buy-now-pay-later loan.”
Two of the provisions that will undoubtedly draw a lot of attention from those in the BNPL industry relate to ability to repay analyses and credit reporting. The bill would require that BNPL providers conduct an ability to repay analysis; however, the methodology and substance of the required analysis are left to be defined in subsequent regulations from the New York Department of Financial Services (“NYDFS”). The proposed legislation’s credit reporting provision requires that accurate data for credit reporting be maintained, but punts on the question of whether those offering BNPL products in the state must actually report that data to credit reporting agencies and, if they do, how credit reporting agencies should reflect that data on credit reports.
A violation of the proposed legislation would be considered a misdemeanor and could result in a fine of up to $500 and/or imprisonment for up to six months. The proposed legislation also includes an undisclosed penalty paid to the state for violations of the proposed legislation or future regulations, and BNPL products offered without a license would be considered void. Only the NYDFS is given enforcement authority in the proposed legislation, but the use of the words “unfair,” “deceptive,” and “abusive” suggests a connection to Governor Hochul’s proposed revisions to General Business Law § 349, which would add prohibitions of unfair and abusive acts and practices to a statute that prohibits deceptive acts or practices and provides for enforcement by the attorney general and a private right of action.
While this legislation still has a long way to go before it becomes law, it would have a significant effect on the BNPL industry if enacted as it is currently written. We will be closely monitoring this proposed legislation and all other legislation and regulations in this space.