New York Enacts First-of-Its-Kind Law to License Buy-Now-Pay-Later Lenders
The regulatory environment for “Buy Now, Pay Later” (or “BNPL”) loans is entering a new era. On May 9, 2025, New York enacted legislation that will require providers of BNPL loans to be licensed by the state and adhere to various disclosure and practice requirements. While the BNPL industry has been subject to increasing regulatory scrutiny in recent years, New York Senate Bill 3008–implementing, among other provisions, the New York Buy-Now-Pay-Later Act (the “NY BNPL Act”)—is the first state law specifically targeting BNPL loans for product-specific licensing obligations and reasonably comprehensive regulatory requirements.
When the set of products now known as BNPL loans first entered US markets, they did so under a closed-end credit structure (whether loans or retail installment contracts) involving repayment in not more than four installments, and with no periodic interest or other finance charges. That structure sat within exemptions from certain consumer financial laws—ranging from the federal Truth in Lending Act (“TILA”) to many state consumer lender licensing regimes. For years, regulatory engagement with the product set consisted primarily of trying to fit it into generalized consumer loan regulatory laws, which allowed for some state oversight even if particular requirements may not have been well-tailored to BNPL terms and use cases. These mismatches only grew over time as BNPL providers innovated as to transaction structures.
The NY BNPL Act presents an unprecedented—though not unexpected—evolution for BNPL regulation, in an effort to better regulate the rapidly growing industry. While more regulation may not be welcomed by providers initially, the NY BNPL Act allows for requirements that align with material concerns for BNPL providers, consumers, and regulators alike without being overly burdened by a need to work across the broader scope of laws that apply to other consumer credit products.
As Mayer Brown reported in March, multiple New York bills were introduced in this legislative session to license and regulate providers of BNPL products. Senate Bill 3008, which was substituted for its Assembly counterpart, was the bill that ultimately prevailed and was enacted. The NY BNPL Act’s success in this session may be explainable in part due to the federal Consumer Financial Protection Bureau’s indication that it will rescind a 2024 Interpretive Rule that treated BNPL products accessible via a “digital user account” as credit cards for TILA purposes, resulting in federal disclosure standards and certain practice requirements in areas such as dispute resolution. As we saw during the first Trump Administration, state regulators often take measures to regulate in an area where there is perceived inaction at the federal level.
The NY BNPL Act will take effect 180 days after the state’s Department of Financial Services (“DFS”) promulgates rules to implement the law. Below, we address key issues regarding the scope and requirements of the Act, though we note that each could be altered materially as the DFS engages in rulemaking activities.
Scope of the Act
The NY BNPL Act applies to persons who “offer” to make a BNPL loan to a consumer by either “extending credit directly” to the consumer or by operating a platform the primary purpose of which is to allow third parties to offer buy-now-pay-later loans. Accordingly, requirements appear to apply not only to BNPL providers that lend, but also at least some that facilitate lending through other parties such as through BNPL marketplaces or bank partnership structures. That said, the statutory language leaves room for a person to fall outside of its scope if such person merely brokers BNPL loans without operating a platform primarily intended for arrangement of BNPL loans, as may be the case for, e.g., retailers that partner with one or more BNPL platforms to offer their consumers a method for purchasing on credit.
The NY BNPL Act defines a BNPL loan as an extension of closed-end credit provided to a New York resident in connection with the resident’s purchase of goods and/or services (excluding motor vehicles), regardless of whether or not the loan charges interest or a finance charge. By providing that the law applies to BNPL loans repayable in one or more installments even if there is no finance charge, the legislation applies to a wider range of transactions than does TILA—as TILA applies generally to extensions of credit repayable in more than four installments or that assess a finance charge unless a “credit card” is involved as a credit access device. As such, BNPL providers structuring their products as traditional four-installment BNPL loans with no finance charge in order to remain outside of TILA would not automatically be excluded from New York’s NY BNPL Act based on that structure.
As indicated above, transactions involving the purchase of motor vehicles on credit remain outside of the NY BNPL Act and would, therefore, be regulated by the state’s other loan and motor vehicle finance laws. In addition, the scope of the NY BNPL Act excludes most transactions in which the creditor is the seller of the goods or services being financed, such that retailers making credit sales would remain subject to the state’s general sales finance-related statutes rather than the new law. It is unclear whether an online marketplace that hosts the goods or services of multiple sellers would qualify as a seller for the purposes of this exemption. Treatment of such a marketplace may depend on how transactions through the marketplace are effected. A limitation on the exemption renders the NY BNPL Act applicable to parties offering credit as the nominal seller of the good or service if, at the consumer’s request, the party acquires a good or service from an underlying seller for the purpose of resale on credit to the consumer, as seen in certain remote sales and remote lease-to-own models currently in market. Finally, a person who makes only “isolated, incidental or occasional transactions” is not a BNPL lender subject to the law.
A BNPL loan is subject the new law if it is made to a “consumer,” defined as an individual who is a New York resident. The statutory language does not include a consumer-purpose limitation, such that some small-business BNPL programs may fall within the scope of the NY BNPL Act when they involve the extension of credit to individuals or sole proprietorships, rather than legal entities. That said, this may be an area in which DFS’s rulemaking process ultimately refocuses requirements on the core of the consumer-purpose BNPL market.
License and “Authorization” Requirement
The new law imposes a two-tier approval scheme on non-exempt BNPL providers. BNPL providers will require either a BNPL license, or BNPL “authorization,” before offering any BNPL products that are subject to the law. Given the DFS’s heavy reliance on the Nationwide Multistate Licensing System (NMLS) for its existing licenses, we would expect the BNPL license—and, potentially, the authorization—to be administered through the NMLS, though specific implementation remains for future rulemaking.
Licensing
Unless exempt, as described below, a BNPL provider is required to obtain a license, rather than an authorization, if it is not a banking organization, foreign banking corporation licensed by the DFS to transact business in New York or originating BNPL loans from a branch in New York subject to New York law, or a New York licensed lender. BNPL lenders that require a license will need to apply for the license using an application form designed by the DFS.
Authorization
A non-exempt BNPL provider is eligible to apply for an “authorization,” rather than a license, if it is a banking organization, foreign banking corporation licensed by the DFS to transact business in New York or originating buy-now-pay-later loans from a branch in New York subject to New York law, or a New York licensed lender, unless exempt.
Product Election
Whether licensed or authorized, BNPL lenders will be permitted to offer only the categories of BNPL products described in the NY BNPL Act and permitted by the DFS, specifically:
- “Buy-now-pay-later zero-interest loans,” meaning a BNPL loan payable in one or more installments without any interest or finance charge;
- “Buy-now-pay-later installment loan,” meaning a BNPL loan with either interest or finance charges or both; and
- Any other subset of BNPL loans the DFS may classify as a separate category by regulation.
Moreover, a licensed or authorized BNPL lender will be limited to one or more of these BNPL product types, although the law indicates that a licensee can update the products it is authorized to offer over time.
Express Exemption and Preemption Considerations
Unlike many state licensing and lender regulatory laws, the NY BNPL Act does not wholly exempt banks from its provisions.
The NY BNPL Act’s licensing and authorization obligations do not apply to national banks or federal thrifts generally. State depository institutions are not similarly exempt, and must obtain the DFS’s authorization to offer select categories of BNPL loans, though they do not require separate licensure.
The statutory provisions do not expressly exempt banks from disclosure and practice requirements applicable to BNPL providers. Whether, and to what extent, these apply may depend on preemption arguments available based on the particular type of bank involved, unless the DFS clarifies this issue in future rulemaking. Additionally, even if a given provision does not apply to a bank, it is possible that another party involved in a bank-originated BNPL transaction may separately qualify, and be subject to regulation as, a BNPL lender under the NY BNPL Act. The market impact of the new provisions may depend heavily on how scoping aspects such as these are resolved.
Substantive Practice Requirements
In addition to its licensing and authorization requirements, the NY BNPL Act imposes broad practice limitations on BNPL lenders.
BNPL lenders are prohibited from charging interest and charges that exceed the lawful amount for that particular lender based on its licenses or authorizations, that are not clearly disclosed and agreed to by the consumer, or that are in excess of the lawful amount to be set by the DFS (not exceeding New York’s general 16% civil usury cap). The NY BNPL Act directs the DFS to establish both a maximum cumulative amount for charges and fees, as well as a maximum per-charge or per-fee amount for each such charge or fee that can be charged under a BNPL agreement, including for origination fees, late payment fees, and default charges.
The act also requires all BNPL lenders to disclose the key terms of BNPL loans clearly and conspicuously in a manner that complies with applicable federal regulations including Regulation Z (implementing TILA) and forthcoming regulations to be promulgated by the DFS. State-specific disclosure likely will be a key area of interest as rulemaking activities proceed, as many common BNPL products have been designed to fall outside of the scope of federal disclosure requirements under TILA.
Additional substantive requirements involve refund requirements, consumer disputes, the maintenance of certain policies and procedures, and data sharing restrictions. The statute also imposes requirements—many grounded in broad unfair and deceptive acts and practices (“UDAP”) concepts—that include, for example, prohibitions on: (i) defrauding or misleading borrowers; (ii) engaging in deceptive or unfair practices; (iii) misapplying payments; (iv) inaccurately furnishing consumer information to consumer reporting agencies; or (v) making false statements or omissions in government reports.
Penalties
Once the NY BNPL Act becomes effective, a BNPL loan made by a person that is either not licensed or “authorized” to make such loans (or exempt from such requirements) will be void and uncollectable as to all interest and charges. In addition, a non-exempt person who makes a BNPL loan subject to the act without a license or authorization is guilty of a misdemeanor punishable by a fine not exceeding $500 and/or imprisonment for up to six months, in addition to potentially significant penalties that the DFS is authorized to assess under its more general statutory authority.
Looking Ahead
As noted above, the NY BNPL Act takes effect 180 days after the DFS promulgates rules to implement the law. Based on recent experience, this could mean years of lead time. As one recent data point, New York’s commercial finance disclosure law did not take effect until almost three years after it was enacted, given the multiple stages of rulemaking that transpired before the DFS adopted final rules. That said, the wait may be shorter in the case of the NY BNPL Act, particularly if the DFS ultimately views TILA-like disclosure requirements as the right outcome for BNPL loans that avoid regulation under TILA itself rather than developing wholly new disclosure concepts from scratch as was the case for the state’s commercial finance disclosure law.
It remains to be seen whether New York’s NY BNPL Act will inspire other states to enact similar laws. Even in the absence of legislation being enacted by other states, New York may complicate matters for lenders doing business nationwide when structuring programs, given that the most common form of BNPL loans (four-installment loans with no finance charges) could soon become subject to material licensing and disclosure requirements in a state that may be too large to exclude from many programs.
