Buy Now Pay Later Lender Licensing Legislation Still Under Consideration in New York

The Buy Now Pay Later ("BNPL")^[1] legislation introduced by New York Governor Kathy Hochul officially died last week. However, BNPL legislation introduced last month by New York Assemblymember Pamela Hunter remains active and, similar to the Governor's bill, proposes that New York be the first state to require BNPL lenders to obtain a state license.

If passed, the licensing requirement will apply to persons who offer BNPL loans in New York. This would include both persons who extend credit directly to a consumer and to persons who operate a platform, software, or system with which a consumer interacts and the primary purpose of which is to allow third parties to offer BNPL loans.

Proposed Scope of BNPL loan

While the license requirement is similar to that proposed by the Governor, the scope of what would constitute a BNPL loan is defined slightly more narrowly in Hunter's surviving legislation as credit provided to a consumer at the time of purchase in connection with such consumer's particular purchase of goods or services (other than a motor vehicle) to be repaid by the consumer in installments. Note, however, that a person who sells goods or services and extends credit to such consumers in connection with the sale would not be deemed a BNPL lender.

Another item to note with respect to the active legislation is that once licensed, BNPL lenders would be under the supervision of the New York Department of Financial Services and would be required to obtain regulatory approval of changes to its ownership, either direct or indirect, of 10% or more. For other license types under the Department's purview, this process can take over 90 days.

Proposed Consumer Protection Measures

In addition to the licensing requirement, the current bill proposes certain consumer protection measures that vary from the Governor's bill. For example, the current bill proposes to restrict BNPL lenders from (i) charging any interest or fees (whereas the Governor's bill proposed to limit to 16%) and (ii) reporting consumer data to a credit reporting agency. It also proposes to require a BNPL lender to obtain consent from the consumer in order to use collected consumer data, whereas the Governor's bill proposed to authorize use without consent so long as the BNPL lender provided the consumer the ability to withdraw consent to such use. Otherwise, the bill's consumer protection measures mirror that of the Governor's by requiring BNPL lenders to:

• Provide clear and conspicuous disclosures of BNPL loan terms, the repayment schedule, and other material conditions;
• Make reasonable determinations that a consumer has the ability to repay the loan;
• Maintain policies and disclose procedures for refunds and credit for goods or services purchased with a BNPL loan; and
• Maintain policies and disclose procedures for resolving consumer disputes.

If passed, New York would be the first state to enact BNPL legislation, setting the tone for other states to follow. We continue monitoring federal and state efforts to regulate BNPL products and will update accordingly.

^[1] BNPL loans are generally payable in four or fewer installments and carry no finance charges.