NYDFS Teases Extensive New BNPL Requirements in Pre-Proposal Rulemaking Activity

New York’s pioneering Buy-Now/Pay-Later (“BNPL”) Law is one step closer to taking effect with the issuance of pre-proposed regulations by the state’s Department of Financial Services (“NYDFS”) on February 23, 2026.

Mayer Brown previously reported on the May 2025 enactment of the New York Buy-Now-Pay-Later Act (the “NY BNPL Act”), the first state law to regulate BNPL transactions comprehensively as a financial product distinct from other forms of lending. Rather than being self-effecting, the NY BNPL Act required the NYDFS to engage in rulemaking to implement the statute’s licensing, loan term, disclosure, and practice provisions. The pre-proposed regulations are an incremental step towards effectiveness of the NY BNPL Act, though the NYDFS will still have to issue a formal proposal, take further public comments on such proposal for a period of at least 60 days following publication of the formal proposal, and only then adopt final rules that would take effect 180 days after their publication.

In this Legal Update, we provide key takeaways for BNPL providers—including, for New York purposes, nearly all parties involved in the origination of closed-end consumer loans extended in connection with the purchase of particular consumer goods or services—and their stakeholders. We will provide further updates as the NYDFS continues its BNPL rulemaking activities.

Executive Summary

• This NYDFS activity is a pre-proposal rule, meaning there are several steps remaining before any new requirements would become effective. Nevertheless, it provides key insights into the state’s current thinking regarding BNPL products.
• The scope of the rulemaking—derived from both the breadth of the NY BNPL Act itself and decisions made by the NYDFS in its initial implementation that would apply BNPL-related requirements even more broadly—is foreboding. In particular, consistent with the statute, the rules govern closed-end BNPL loans (but not credit sales or retail installment contracts in most cases) financing any purchase of consumer goods or services other than motor vehicles; and the rules would govern bank-originated loans to a greater extent than most state lending regulatory regimes.
• Thematically, the regulations seek: (i) to bring activities previously unlicensed and unsupervised under the NYDFS’s oversight; (ii) to clarify the positioning of BNPL products within the state’s usury regime and tighten restrictions on BNPL cost; and (iii) to advance the Biden-era CFPB’s approach to treating BNPL products as involving “credit cards” for certain regulatory purposes (without actually using the underlying terminology).
• While the NY BNPL Act provided the NYDFS the ability to distinguish among classes of BNPL products in establishing regulatory requirements, the NYDFS largely did not do so other than to implement a distinction between “interest-free” and “interest-bearing” products already present in the statute.

Proposal Details

Lending Products Regulated

Consistent with the NY BNPL Act, the pre-proposed regulations broadly define “BNPL loans” to be “closed-end credit extended to a consumer in connection with such consumer’s particular purchase of goods and/or services, other than a motor vehicle.”¹

Limitation to Consumer-Purpose Transactions

The rules expressly narrow the scope of new requirements to consumer-purpose BNPL transactions, eliminating coverage of loans to finance consumer goods or services purchases by natural persons or sole proprietorships for business purposes that was possible under (though not likely a key policy rationale behind) the NY BNPL Act’s statutory language.²

Exclusion of Most Seller-Originated Financing

The rules also expressly exempt most credit extended by sellers of retail goods and services (i.e., credit sales or retail installment contracts), although they carve out an exception-to-the-exception for BNPL programs implemented through a program under which a creditor acquires goods or services from third-party sellers at the consumer’s request for onward financing to the consumer as part of a coherent credit transaction.³

Limited Product-Level Distinction in Regulatory Requirements

At this time, the pre-proposed regulations make limited other distinctions among BNPL products. There are, for example, no exemptions for real estate-secured loans extended to purchase consumer goods or services (as may occur in some home improvement or solar financing programs), student loans, or other specifically regulated product types beyond the aforementioned exemption for motor vehicle financing. Moreover, even the exemption for motor vehicle financing is subject to the same ambiguity previously realized for similar exemptions from the federal Military Lending Act and analogous state laws with respect to closed-end credit transactions financing both a motor vehicle and additional/add-on products and services.

Although the NY BNPL Act authorizes the NYDFS to introduce new categories of BNPL products by rule beyond the two categories (interest-free and interest-bearing loans) addressed in the statute, the NYDFS has not elected to do so in its pre-proposed regulations. Accordingly, for example, longer-term, monthly-pay closed-end loans for larger consumer goods purchases on a one-off basis are subject to the same requirements as loans extended under BNPL programs in which a single account houses multiple smaller purchases over time. The NY BNPL Act provided flexibility to the NYDFS in developing regulatory requirements better aligned to sub-classes of BNPL loans, but the NYDFS has, so far, elected not to employ this authority to tailor its requirements to materially different BNPL contexts.

Parties Regulated

The pre-proposed regulations impose certain requirements on BNPL Lenders and other requirements on BNPL loans themselves. BNPL Lenders are defined, again broadly, as parties “offering BNPL loans in [New York].” Offering is then clarified to include making BNPL loans, acquiring ownership of BNPL loans on a post-origination basis, or “operating a platform, software or system with which a consumer interacts directly or indirectly and a substantial purpose of the consumer’s interaction with such platform, software or system is to obtain [BNPL loans] from third parties.”⁴

Application to Fintechs

The definition of BNPL lender is structured in a manner intended to capture most fintechs operating in the BNPL space, whether they do so as a direct lender, under a bank partnership structure, or through creation of a marketplace for the purchase of consumer goods and services on credit extended by third-party lenders. While application of the definition to a particular program may present implementation-specific bases for exclusion, the regulatory language is not, on its face, amenable to narrow application, for example, to the named lender on a given transaction.

Application to Banks

Consistent with the NY BNPL Act, the rules engage more thoroughly with banking entities than many state consumer credit laws. Banks and bank products are not subject to blanket exemption. To the contrary, exemptions and regulatory easing for banks participating in BNPL programs is narrowly tailored. Depending on institution type and program facts, the application of the state’s BNPL-related requirements may depend on one or more preemption standards under federal banking law, including Barnett preemption for national banks, consideration of banks’ interest exportation authority (e.g., under the Depository Institutions Deregulation and Monetary Control Act of 1980 (DIDMCA)), and/or preemption standards related to interstate banking (e.g., under the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (IBBEA)).

• National banks (and similar federally chartered banking entities) are exempt from the rules’ licensing and authorization requirements in full, but their products remain facially subject to regulation. Many of the facial requirements, including limitations on rates and fees, disclosure requirements, etc. are likely to be preempted in application to national bank programs by the Barnett standard under the National Bank Act. As national bank preemption standards continue to develop into more fact-intensive analyses in the wake of the US Supreme Court’s 2024 Cantero decision,⁵ however, New York has positioned its BNPL regulatory regime to regulate national bank products to the fullest extent ultimately possible for state activity.
• New York state-chartered banks (and similar institutions), as well as non-New York state-chartered institutions authorized to conduct business in New York or lending from a New York branch, are subject to a lighter “authorization” process rather than full licensure, though their BNPL loans remain subject to the substantive requirements applicable to non-bank lenders.
• Non-New York state-chartered banks (and similar institutions) that neither are authorized by New York to transact business in the state nor lending from a New York branch are subject to the full licensure process. Their BNPL loans remain subject to the substantive requirements applicable to non-bank lenders, albeit with preemption-based defenses to application of rate and fee limitations through DIDMCA interest exportation authority.

Application to Secondary Market Purchasers

The pre-proposed regulations would expand the definition of a BNPL lender to include not only the originator of a BNPL transaction, but also “a person to whom ownership of a BNPL loan is transferred.” This effort to expand the reach of the law from BNPL providers to secondary market purchasers of consummated BNPL transactions would require passive purchasers of BNPL loans to be licensed (or “authorized”) under the statute and to grapple with the applicability of the array of other requirements set out in the pre-proposed regulations, though purchasers of lesser interests such as receivables or participation interests may not fall within the defined scope.

The NYDFS’s broad definition arguably extends beyond the plain language of the NY BNPL Act, which limits a BNPL provider to a person “offering to make a buy-now-pay-later loan by extending credit directly to a consumer,” or operates a platform to facilitate such offers by third parties. Accordingly, if adopted in their current form, the pre-proposed regulations could be subject to challenge on the basis that they are materially inconsistent with the empowering statute.

Interaction with Other New York License Types and Credit Regulatory Laws

• Licensed Lenders: New York currently licenses and regulates non-mortgage lenders under its Licensed Lenders Law.⁶ Licensed lenders are not exempt from the NY BNPL Act in full, though they are subject to an “authorization” process rather than full licensure. As the Licensed Lenders Law applies only to certain loans with annual percentage rates (“APRs”) in excess of New York’s 16% civil usury limit, and the NY BNPL Act caps rates on BNPL loans at the same civil usury limit, BNPL loans typically should not be subject to regulation under both the NY BNPL Act and the Licensed Lenders Law simultaneously. That said, a Licensed Lender that makes closed-end loans for the purpose of retail financing would need to comply with the NY BNPL Act and could not make such loans with rates exceeding 16% were these pre-proposal rules to become effective, notwithstanding that their current rate authority typically is 25% per year as a licensee.
• Sales Finance Companies: New York’s Sales Finance Companies Act⁷ has long required a license to engage in business as a “sales finance company,” defined as a person engaged in purchasing or acquiring retail installment contracts, obligations, or credit agreements made between other parties. In most cases, a person should not qualify as both a sales finance company and a BNPL lender in connection with the purchase of a single contract in the secondary market. The Sales Finance Companies Act applies to contracts entered into between a buyer and seller of retail goods or services, whereas the NY BNPL Act expressly excludes credit where the creditor is the seller of such goods and/or services, unless the creditor purchases a specific good or service from a seller to sell on to a consumer on closed-end credit. That said, parties purchasing credit agreements from platforms within this “exception-from-the-exception” could find themselves falling under both the Sales Finance Companies Act and the NY BNPL Act with respect to such activities.
• Mortgage Lenders: The NY BNPL Act does not expressly exempt mortgage lenders or loans from its regulatory requirements. Accordingly, were a loan secured by real property extended for the purpose of purchasing particular consumer goods or services (e.g., a special-purpose home improvement program), it is possible that such a loan would be regulated under both the New York mortgage laws and the NY BNPL Act. Purchase money mortgage loans themselves should not be at risk, as real property is not likely to be treated as a consumer good or service under the terms of the NYDFS proposal.⁸

Licensing and Authorization

The NY BNPL Act bifurcates the state’s grant of permission to engage in BNPL activities into (i) a licensing regime for non-bank lenders not licensed under the New York Licensed Lenders Law and out-of-state banking institutions not authorized by NYDFS to transact business in New York or making BNPL loans from a New York bank branch, and (ii) an authorization regime for entities already chartered or licensed by the NYDFS or originating BNPL loans from a New York bank branch. The licensing regime will carry incrementally heightened procedural burdens with respect to initial licensure and ongoing compliance with regulator-facing requirements such as net-new capital requirements and examination exposure.

Under each of these regimes, a party permitted to engage in BNPL activities will be permitted to engage in certain practices specifically for interest-bearing BNPL loans, interest-free BNPL loans, or both. The NYDFS could have established additional categories of BNPL loans that would be permitted and regulated separately, but has chosen not to do so at this time.

Interest and Fees

The NYDFS’s pre-proposed regulations take a hands-on approach to permissible BNPL loan terms, including the granular regulation of interest and fees.

• Interest: BNPL loans would be limited to the interest rate cap under New York’s civil usury law, which permits a 16% APR in most cases. The pre-proposed regulations adopt a vague definition of interest for these purposes that incorporates existing state banking rules defining interest to include all amounts that “would be includible as interest under New York law as it existed prior to the enactment of chapter 349 of the Laws of 1968.”⁹ The pre-proposed regulations clarify that interest would include any amount charged for, or as a condition of, making or originating a BNPL loan, and any finance charge as defined in federal Regulation Z (under the Truth in Lending Act). While the specific implementation of this rate limitation is subject to NYDFS interpretation, note that the general concept that BNPL loans should be subject to the state’s civil usury limit is a requirement of the NY BNPL Act’s statutory language.
• Penalty Fees: The rules also would restrict fees such as late fees, bad check/NSF fees, etc. chargeable by a BNPL lender for a borrower’s violation of a BNPL loan agreement. The NY BNPL Act provided the NYDFS authority to impose such limitations, but did not establish specific fee limits. The rules limit penalty fees on BNPL loans to the lesser of an amount calculated based on the cost to the BNPL lender of the violation that generated the penalty (with an $8 safe harbor value) or the “dollar amount associated with the violation” (meaning, for example, that if a consumer is late with respect to a payment amount that is $5, the late fee could not exceed $5). This multi-pronged limitation structure is similar to that applicable to credit card accounts under the federal Truth in Lending Act (“TILA”), but: (i) would be applied regardless of whether the BNPL program at issue involves a credit card; and (ii) uses a “safe harbor” threshold derived from an aggressive Biden-era CFPB credit card fee proposal¹⁰ rather than current TILA requirements that adopt a safe harbor or $30 or $41 (each, as adjusted annually for inflation) depending on whether the fee is imposed for a first or subsequent instance of the same loan contract violation. Additionally, maximum cumulative penalty fees would be capped at the original amount financed under a BNPL loan.
• Other Specific Fee Limitations: In addition to the above, no payment-related fee may be imposed for any payment method that does not involve an expedited service; prepayment must be permitted and prepayment penalties are prohibited; and a BNPL lender may only solicit tips if certain disclosures are made and other conditions are satisfied.

Disclosures

The NYDFS proposes an exhaustive disclosure regime largely aligning with the disclosures required for closed-end consumer credit accessible by a credit card under TILA/Regulation Z without regard to whether a credit card or similar access device actually is involved in the BNPL transaction. As with the NYDFS’s approach to penalty fee limitations, described above, its disclosure approach follows in the footsteps of aggressive Biden-era CFPB approaches to BNPL disclosures, but takes such approaches beyond the limits that even the Biden-era CFPB applied.¹¹

Differences in required content between the NYDFS’s approach to initial disclosure and mere TILA compliance include—as examples—that a “total sale price” would be required to be disclosed for all BNPL transactions notwithstanding that such concept is limited to credit sales (largely outside of the scope of the NY BNPL Act) under TILA, and that New York-specific disclosures would be required to include broader disclosure of fees and additional language regarding consequences of default and credit reporting than are required on TILA disclosures. Additionally, New York disclosures would be required even if the transaction otherwise is exempt from TILA and in both English and Spanish, as well as any other language principally used in any advertisements in New York by the BNPL lender.

The pre-proposed regulations would also require certain post-consummation disclosures confirming the transaction and the identity of the retail seller from which a purchase has been made on credit, as well as provision of periodic statements to consumers not otherwise required by existing New York or Federal law for most closed-end extensions of credit. There are also separate privacy protections requiring disclosures and the consumer’s consent related to the BNPL lender’s use, sale or sharing of covered data outside of the particular BNPL loan to the consumer.

One silver lining with respect to disclosures is that the NYDFS ultimately would issue model forms for lenders to populate rather than having to construct their own templates de novo.

Miscellaneous Other Requirements

Although the remaining requirements are too numerous to describe in depth here, below is a summary of some of the more material areas of regulation under the pre-proposed regulations. Licensees would bear the heaviest compliance burden, but many requirements apply to BNPL lenders or the underlying BNPL loans themselves more broadly. Key additional requirements, subject to some ability of the NYDFS to waive requirements that may be duplicative of those already applicable to a BNPL lender that is supervised by the DFS in other capacities, would include:

• Recordkeeping: Requirements would apply to all non-exempt organizations, whether licensees or authorized entities.
• Regulatory Reporting: Licensees would be required to submit financial statements (on an unaudited basis quarterly and an audited basis annually) as well as such additional quarterly or “special” information ultimately determined by the NYDFS to be required.
• Submission of Third-Party Audit Reports: Each licensee also would be required to provide the DFS with a certified copy of any audit of the licensee or its affiliates by any lender extending a line of credit to the licensee, investor, or party to a loan purchase agreement within ten days of the licensee’s receipt of such audit.
• Qualified Individual: Each licensee would be required to designate a qualified individual responsible for compliance with the NY BNPL Act and other applicable law.
• Capital Sufficiency: Licensees would be required to maintain capital in an amount sufficient to cover outstanding obligations to consumers such as potential refund amounts, to be maintained in the form of a surety bond or acceptable deposits.
• Complaint Management: BNPL lenders would be required to maintain written policy and procedures to fairly and timely resolve complaints, and provision of related disclosures to inform consumers of complaint procedures.
• Advertising: BNPL advertising would be subject to disclosure and substantive requirements, including a seven-year retention period for advertising materials, the requirement for licensees to include a “Licensed to offer BNPL loans by the New York State Department of Financial Services” legend on advertising materials, prohibitions on false, misleading or deceptive representations or omissions, specific requirements for advertisements that state a periodic payment amount, and prohibitions on using descriptive language such as “as low as” or “from” without additional disclosures.
• Privacy: Each BNPL lender would be required to maintain written policies and procedures regarding its use, sale and sharing of covered data (non-public information of a consumer including personally identifiable information, transaction or account-level consumer information and any consumer metadata collected or maintained). 
• Credit Underwriting: The rules would require use of reasonable risk-based underwriting requirements, and maintenance of associated policies and procedures. Factors considered in the underwriting process must be clearly and conspicuously disclosed to the consumer. Use of the credit characteristics of a consumer’s social network for underwriting purposes would be prohibited. Moreover, each licensee would be required to maintain policies and documentation relating to BNPL loan pricing and credit criteria (i.e., a compliance management obligation, rather than mere actual compliance with substantive standards).
• Servicing and Collections: Regulated entities would be subject to requirements relating to processing of payments, provision of refunds and credits, and treatment of transaction-level and unauthorized account use disputes (each largely aligned with the coverage of similar topics under TILA’s provisions applicable to card-accessible closed-end credit, albeit without regard to whether the BNPL loan involves a credit card as an access device). Regulated entities also would be restricted as to their ability to offer “payment delay transactions” in which one or more BNPL installments are deferred for a fee.

Looking Ahead

The pre-proposed regulations from the NYDFS are a step toward adoption of the state’s new BNPL regulatory regime. They will not become effective until 180 days after adoption of a final rule, which itself will not occur until there has been another round of formal rulemaking proposals and consideration of public comments. If and when the rules ultimately take effect, non-exempt persons already doing business as BNPL lenders must apply for a license within 45 days of the rules’ effective date, which will authorize the lender to do business in a provisional status until the NYDFS approves or denies the application. It appears that BNPL licensees would not be applied for and maintained through the Nationwide Multistate Licensing System (“NMLS”), in contrast to most other New York licenses, although the pre-proposed regulations provide for a person to submit their application electronically, possibly through the NYDFS’s website.

Of course, if and when final rules are adopted, they may differ from the pre-proposed regulations in significant ways, as has been the case for prior NYDFS rulemaking efforts. While the initial period for submission of comments in connection with the pre-proposed regulations has closed, stakeholders (including industry participants and trade associations) could consider engaging with the NYDFS to further tailor requirements to various types of BNPLs, for example. If the rules do not change materially before adoption, lenders and investors may find themselves facing a compliance environment in New York that is inflexible and unaccommodating to a range of financing products typically used by consumers to purchase goods or services, not just the narrow universe of non-bank “pay-in-4” products that occupy the core

¹ N.Y. COMP. CODES R. & REGS. tit. 3, § 423.1(f) (as pre-proposed).

² Id. § 423.1(f)(2).

³ Id. § 423.1(f)(1).

⁴ Id. § 423.1(d).

⁵ Kris D. Kully & Eric T. Mitzenmacher, Supreme Court Preemption Ruling Could Create Uncertainty and Burden for National Banks, CONSUMER FINANCIAL SERVICES REVIEW (May 30, 2024).  

⁶ N.Y. Banking Law §§ 340 et seq.

⁷ Id. §§ 491 et seq.

⁸ Exclusion of real property would be consistent with both the common usage of the term consumer goods and the specific concept of “goods” under other New York credit regulatory laws, such as the New York Retail Instalment Sales Act, which limit the scope of goods to personal property. N.Y. Pers. Prop. Law § 401(1).

⁹ N.Y. COMP. CODES R. & REGS. tit. 3, §§ 423.9(a); 4.2.

¹⁰ Eric T. Mitzenmacher, CFPB Finalizes Significant Restrictions on Credit Card Late Fees, CONSUMER FINANCIAL SERVICES REVIEW  (Mar. 6, 2024).

¹¹ See Eric T. Mitzenmacher, CFPB Interpretive Rule Exposes Some BNPL Programs to Credit Card Requirements, CONSUMER FINANCIAL SERVICES REVIEW (May 24, 2024). The rule was rescinded in 2025. See Eric T. Mitzenmacher & Joy Tsai, CFPB Indicates That It Will Rescind Buy Now, Pay Later Interpretative Rule, CONSUMER FINANCIAL SERVICES REVIEW (Mar. 29, 2025).