Highlights
- Buy-now-pay-later (BNPL) loans have grown in popularity due to their convenience, but that convenience can harm some financially vulnerable consumers.
- The state of New York's new Buy-Now-Pay-Later Act creates a state-level licensing regime in an attempt to address the risk to consumers.
- This Holland & Knight alert provides background on BNPL loans and how the new legislation will affect consumers and BNPL providers going forward.
Once hailed as the sleek, interest-free alternative to credit cards, buy-now-pay-later (BNPL) loans have become a defining feature of modern consumer finance. Consumers like them because with just a few clicks, they can typically split payments into four (or fewer) manageable chunks – with no interest and no fuss.
Consumer financial service providers like BNPL loans because they can offer them without becoming subject to the federal Truth in Lending Act (TILA)1 – the key U.S. consumer credit protection law that requires lenders to disclose the terms and costs of each loan they make. That is because TILA applies only to persons who regularly extend "consumer credit that is subject to a finance charge or is payable by written agreement in more than four installments,"2 and the typical BNPL loan is repayable without interest or other charges in four or fewer installments.
Behind the scenes, several financial technology (FinTech) giants have built empires on this model, charging merchants a 2 percent to 8 percent fee per transaction and collecting late fees where applicable.
BNPL's appeal is undeniable – 52 percent of Americans have used it, with Generation Z and Millennials leading the charge.3 But its popularity has also drawn scrutiny. A study by the Federal Reserve found that "while BNPL is a convenient payment mechanism that consumers can use to access credit, some financially vulnerable consumers may be overextending themselves by using BNPL to make purchases that they otherwise could not afford."4
CFPB Response: A Tale of Two Administrations
The use of BNPL Loans increased 1,100 percent from 2019 to 2021.5 In 2024, the Consumer Financial Protection Bureau (CFPB), under the Biden Administration, addressed this growth by taking a bold step: issuing an interpretative rule, effective July 30, 2024, construing for the first time BNPL lenders as "credit issuers" and BNPL digital accounts as "credit cards," thereby bringing both under the purview of TILA and its implementing regulation, Regulation Z.6
Under the Trump Administration, however, the CFPB recently signaled a course reversal. On May 6, 2025, it announced in a press release that it will not prioritize enforcement of the rule and is further contemplating taking appropriate action to rescind it.7
New York's Approach
As the federal government pulled back, New York moved forward. On May 9, 2025, Gov. Kathy Hochul signed into law Senate Bill S3008C, the Buy-Now-Pay-Later Act (BNPL Act), codified as part of Article 14-B of the New York Banking Law.8
Per Gov. Hochul's May 9, 2025, press release,9 the BNPL Act is an attempt to address the "risks to consumers, including overextension, inconsistent credit reporting, data exploitation and excessive fees" posed by BNPL products. It creates the first state-level licensing regime specifically for BNPL lenders and introduces "safeguards, such as disclosure requirements, dispute resolution standards, limits on charges and fees, and data privacy protections to ensure consumers are better protected when using these financial products."
Effective Date
The BNPL Act becomes effective 180 days after the New York Department of Financial Services (DFS) adopts regulations implementing its provisions.
Scope
The BNPL Act applies to BNPL loans and BNPL lenders. It defines BNPL loans broadly to mean "closed-end credit provided to a consumer in connection with [the] consumer's particular purchase of goods and/or services," with exceptions only for credit provided to purchase a motor vehicle and credit provided by the seller of the goods and/or services.10 And it defines BNPL lenders broadly to include not only persons who offer to make BNPL loans directly to a New York resident consumer, but also to persons who operate "a platform, software or system with which a [NY-resident] consumer interacts ... the primary purpose of which is to allow third parties to offer [BNPL] loans...."11
The BNPL Act specifically exempts federally chartered banking institutions, including foreign banking corporations licensed by the New York State Office of the Comptroller of the Currency (OCC) (Exempt Organizations) from its licensing and other requirements that apply only to "licensees." Exempt Organizations, however, must still comply with any non-preempted provisions in the BNPL Act that apply to "[BNPL] lenders."
License Requirement
The primary obligation the BNPL Act places on BNPL lenders is to obtain a BNPL lender license from the DFS before offering a BNPL loan to a New York resident consumer.12 However, Exempt Organizations need not obtain this license. In addition, New York-chartered banking organizations, foreign banking corporations licensed by the DFS to transact business in New York or originate BNPL loans from a branch in New York, and persons licensed under the New York Licensed Lenders Act (collectively, Authorized BNPL lenders) also need not obtain this license provided they obtain written authorization from the DFS to act as a BNPL lender for the specific category or categories of BNPL loans they wish to offer in New York. A BNPL license authorizes the licensee to offer BNPL "zero-interest loans," BNPL "installment loans" (on which interest or a finance charge is imposed) and any other category of BNPL loans the DFS establishes by regulation. To offer any other type of BNPL loan, a licensee must obtain prior approval from the DFS.
Typical of other New York licensing statutes applicable to financial services providers, the BNPL Act gives the DFS discretion 1) to approve, deny or revoke licenses after reviewing the applicant's financial responsibility including capital adequacy, experience, character and general fitness, and 2) broad authority to adopt regulations "to implement the provisions of the [BNPL Act], protect consumers, and ensure the solvency and financial integrity of [BNPL] lenders."13
BNPL loans made by a person (other than an Exempt Organization) that is neither a BNPL licensee nor an Authorized BNPL lender are void and the lender "has no right to collect or receive any principal, interest or charge whatsoever" in connection with the loan.14
Oversight
The BNPL Act provides the DFS broad oversight authority over BNPL licensees, including the power to:
- set or prescribe a methodology to calculate required capital requirements
- make investigations to determine whether they have conducted themselves in a manner that would justify revocation of their license and examine their books and records
- approve or deny proposed acquisitions of control of their businesses
- require them to keep specific records15 and file annual reports with the DFS concerning their operations
- revoke or suspend their licenses for various reasons, including violations of applicable law, failure to disclose facts in their license application process that, if known by the DFS, would have resulted in a license denial and failure to comply with any lawful DFS demand for payment of monies or any other DFS order, demand or requirement16
In addition, the BNPL Act empowers the DFS to "make such investigations as ... necessary to "determine whether any [BNPL] lender or any other person has violated any of the provisions of [the BNPL Act] or any other applicable law.17 This provision appears on its face to authorize the DFS to investigate not only licensees, but also Authorized BNPL lenders, Exempt Organizations, and any other persons.
Consumer Protections
The BNPL Act includes various consumer protection provisions applicable to all BNPL lenders, including but not limited to the following:
- Prohibitions. The BNPL Act prohibits BNPL lenders from taking confessions of judgment or powers of attorney to confess judgments, engaging in deceptive or unfair practices, misapplying borrower payments and providing inaccurate information to consumer reporting agencies.
- Interest and Fee Limits. BNPL lenders may not:
- charge interest in excess of the maximum rate allowed by law (or set by the DFS)
- charge interest at a rate that has not been clearly disclosed to the consumer and to which the consumer has agreed
- impose fees and charges which individually or collectively exceed limits set by the DFS
- Disclosure Obligations. BNPL lenders must clearly and conspicuously disclose to consumers the terms of their BNPL loans (interest, fees, repayment schedule, billing practices and how to dispute a bill, whether the transaction will be reported to a credit reporting agency, etc.) in compliance with "applicable federal regulations, including ... [R]egulation Z."18
- Policies and Procedures. BNPL lenders must
maintain policies and procedures for:
- "reasonable risk-based underwriting" taking into account only the applicant's credit worthiness, standing or capacity
- credit reporting designed to ensure that the data they may report to consumer reporting agencies is accurate
- handling consumer requests for refunds or credits for goods or services purchased with the proceeds of a BNPL loan
- handling consumer disputes consistent with the dispute rights that apply to credit card charges under TILA (even if TILA is not applicable)
- sharing consumer data with third parties, which may be done only with the consumer's consent19
Penalties
The BNPL Act imposes both criminal and civil penalties upon persons who violate or participate in a violation of the BNPL Act or any of the regulations adopted by the DFS to implement it, including BNPL licensees, Authorized BNPL lenders, Exempt Organizations, and "any member, officer, director or employee of" a BNPL lender. Conviction of a violation is a misdemeanor punishable by a fine of not more than $500 and/or imprisonment for not more than six months. Additionally, the DFS can pursue violators administratively and impose fines.20
Industry Pushback and the Road Ahead
The BNPL industry, as one might expect, opposed the BNPL Act. The president of one industry group that represents the interests of a network of some of the most well-known FinTech leaders, called New York's law "flawed," criticizing its treatment of BNPL loans as equivalent to credit cards and warning it could stifle access to low-cost credit at a time when consumers are already burdened by inflation and debt.21
Nevertheless, with the retreat by federal regulators, additional states may be tempted to enact laws such as the New York BNPL Act. The question is whether such state laws will end up helping or hurting those whom they are intended to benefit.
Footnotes
1. 15 U.S.C. 1601 et seq.
2. 12 CFR 1026.2(a)(17) (def'n of "creditor") (italics added). 12 CFR Part 1026, known as Regulation Z, is the regulation that implements TILA.
3. PartnerCentric, Buy Now, Pay Later (BNPL) Industry Consumer Trends, PartnerCentric (2025).
4. Jeff Larrimore, Alicia Lloro, Zofsha Merchant & Anna Tranfaglia, "The Only Way I Could Afford It": Who Uses BNPL and Why, Bd. of Governors of the Fed. Rsrv. Sys., FEDS Notes (Dec. 20, 2024).
5. Consumer Financial Protection Bureau, "Buy Now, Pay Later: Market trends and Consumer Impacts", CFPB Report (Sept. 15, 2022)
6. 89 Fed. Reg. 47,068 (May 31, 2024).
8. N.Y. Banking Law § 735 et seq.
9. Department of Financial Services, Oversight Over "Buy Now, Pay Later" Loans Established in FY26 Budget, Press Release (May 9, 2025).
10. N.Y. Banking Law § 736(3).
11. N.Y. Banking Law § 736(4).
12. N.Y. Banking Law § 737(a).
13. N.Y. Banking Law § 738.
14. N.Y. Banking Law § 746(7).
15. NY Banking Law § 743(1). Note that while Section 743 is headed "Licensee's books and records; reports," Subsection 1 refers to any BNPL lender.
16. N.Y. Banking Law §§ 741-743. Note that the DFS may suspend a BNPL license without notice and a hearing for a period of not more than 30 days for "good cause" (i.e., engaging in a practice prohibited by the BNPL Act or regulations or "dishonest or inequitable practices which may cause substantial harm to the public." Id. § 741(5).
17. N.Y. Banking Law § 742(1).
18. Should the CFPB follow through on its stated intention to rescind its BNPL Interpretative Rule, Regulation Z would no longer be "applicable" to BNPL loans repayable without interest or other charges in four or fewer installments and, hence, would not need to comply with this provision of the BNPL Act.
19. N.Y. Banking Law § 744-746.
20. N.Y. Banking Law § 748. Note that the Act does not address the amount of or any limitation on the amount of the fines DFS may impose. However, in another section of the BNPL Act, it authorizes the DFS to adopt "such rules and regulations as may be necessary for the enforcement of [the BNPL Act]." See N.Y. Banking Law § 747(2)(d).
21. FTA Statement on Flawed BNPL Provisions in New York State Budget, Fin. Tech. Ass'n (May 7, 2025).
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
