Financing is a service that has been available for big-ticket purchases for quite some time. Lending has expanded within the past few years to include “Buy Now, Pay Later” (BNPL) options, available for smaller items, such as clothing bought online. New Yorkers can even use BNPL services when ordering food through delivery apps. The rapid expansion of this industry has led to recent changes to legislation in New York, which will affect debt collection efforts statewide.
In May, Governor Hochul signed new legislation to protect consumers from different predatory practices, including Buy Now, Pay Later. BNPL loans, which are becoming increasingly popular, threaten consumers with financial overextension, inconsistent credit reporting, and hidden fees. The New York State FY26 Budget is the first of its kind in the nation to take the first step in tackling this largely unregulated market. The state aims to introduce guidelines such as limits on charges and fees, data privacy protection, and disclosure requirements.
New York views Buy Now, Pay Later lending as a growing concern that warrants regulatory intervention due to the risks it poses to consumers and the financial system. While BNPL has offered convenience and flexibility to many shoppers, the industry has operated largely outside traditional lending laws, allowing companies to avoid the oversight, consumer protections, and licensing requirements that apply to banks and credit card issuers. This lack of regulation has led to widespread consumer confusion about the true cost of BNPL products, including hidden fees, unclear repayment terms, and the potential impact on credit scores.
How BNPL legislation will affect debt collection
This new legislation will affect debt collection in New York, enhancing consumer protections in the Buy Now, Pay Later sector and imposing stricter regulations on creditors and debt collectors. It will also impact BNPL lenders, any non-bank entity offering BNPL loans.
The “Buy-Now-Pay-Later Act” will cover companies other than banks that finance Buy Now, Pay Later purchases. (Banks are already regulated.) The act requires lenders to obtain a license from the Superintendent of Financial Services. The application for licensure requires financial statements and evidence of solvency. Once approved, lenders must post the license on their app or website. The superintendent will now have the authority to conduct examinations, require record-keeping, and issue rules and penalties for violations.
The act will also require BNPL agencies to disclose terms and conditions, including cost, interest, fees, and whether the transaction will be reported to a credit reporting agency. Additionally, the Buy-Now-Pay-Later Act requires the creditor to make a reasonable determination that the consumer has the ability to repay the loan prior to lending. Lenders must also provide refunds and credits for goods or services purchased upon consumer request.
The Buy-Now-Pay-Later Act aims to protect consumers by limiting fees and interest rates, protecting their data, voiding loans from unlicensed entities, and implementing other reforms to this rapidly expanding industry. Now, lenders will be regulated by New York, where they are not currently regulated. Currently, the agreements provide for arbitration in the lender’s home state, making it most unlikely for consumers to defend their cases. This act should reduce the growing number of debtors with largely uncollectable cases that get sent to BNPL agencies.
Have questions about debt collection? Contact Frank, Frank, Goldstein and Nager by email or call +1 (212) 686-0100. We have the experience that pays.
