New York has passed the first comprehensive law to protect shoppers who use Buy Now, Pay Later (BNPL) loans. Some details remain to be fleshed out through regulations, and the law does not address every issue BNPL borrowers may face. But it is a significant step forward and provides a helpful roadmap for other states. Here are some of the highlights of the New York Buy-Now-Pay-Later Act (NY BNPL Act) and suggestions for how they can be implemented in New York or adapted in other states to protect BNPL users.
With the typical “pay-in-four” BNPL loan, a quarter of the price is due at checkout followed by three additional payments every two weeks for the next six weeks. Most BNPL loans carry no interest or up-front fees, but they can charge late fees and other fees. This issue brief focuses primarily on BNPL loans that require four payments. The New York law also covers other interest-bearing credit offered at retail stores, and new business models may emerge.
As with all forms of credit, BNPL loans can be useful if the loans are affordable. But BNPL loans have many risks, including hidden costs, unaffordable debt, overdraft fees, issues with disputed or returned purchases, complicated repayment dates, loan stacking from multiple providers, and risks to credit reports and scores. Most BNPL loans are taken out by users with subprime or deep subprime credit scores. BNPL borrowers are disproportionately Black, Hispanic, female, and younger, and these populations will be especially impacted by BNPL’s risks.
State protections and oversight for BNPL loans are especially important now that the Consumer Financial Protection Bureau (CFPB) has been gutted. The CFPB has also created ambiguity about the protections under federal law. States can fill those gaps. State action is also critical given the high risks of BNPL loans and the historically marginalized populations that disproportionately use the loans.
Building on the New York model, states looking to regulate BNPL lenders should address:
- Broad scope addressing different types of loans
- Clear disclosures
- Interest and fee limits
- Reasonable underwriting for ability to repay
- Repeat debiting that triggers overdraft fees
- Credit reporting and data sharing
- Refunds, disputes, and errors
- Easy cancellation of subscriptions
- Unfair, deceptive or abusive practices
- Fair lending
- Language access
- Consumer remedies
- Reports, available to the public
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