Strict Regulations on the Horizon for BNPL Services

In a significant move towards tighter control, New York Governors have thrown their support behind a proposal that would necessitate buy now, pay later (BNPL) lenders to secure a license to operate within the state. This initiative follows a December letter from three senators to the Consumer Financial Protection Bureau (CFPB), urging the agency to consider similar regulations at the federal level.

Governors’ plan aims to bring BNPL companies operating in New York under the purview of the state's Department of Financial Services (DFS). The proposal includes measures to curb abusive and excessive late fees, mandate clear disclosure of loan terms, and require lenders to report their activities to credit bureaus.

California has already taken pioneering steps in regulating BNPL, mandating that providers obtain state lending license and adhere to state lending laws. Since 2020, the state has imposed fines on at least five BNPL providers for non-compliance with these regulations.

While federal regulators have yet to establish their own guidelines, the pressure is mounting. In December, three Democratic senators called on the CFPB to scrutinise the BNPL sector more closely. Their letter expressed concerns that consumers might face financial difficulties once the holiday season bills arrive. They are concerned that, after the holiday season is over and the bill comes due, consumers will continue struggling with BNPL products. 

Despite the prospect of increased regulation, BNPL providers appear to be bracing themselves for the changes. Many companies in this burgeoning market have anticipated greater scrutiny and have been marketing their services with stricter compliance in mind. Many of the major BNPL vendors have already been working with regulators in some capacity and are likely prepared to deal with the effects of reporting to the credit bureaus. While New York State’s proposed regulations might not spell the end for BNPL services in New York, they could significantly affect vendors dependent on late fee income, potentially prompting a shift towards interest rate loans to offset the loss.

The global trend towards heavier oversight of BNPL practices is also evident. In May, Australia announced plans to classify BNPL services as a credit product, subjecting them to more stringent regulations. Meanwhile, the United Kingdom is contemplating additional measures to regulate this rapidly growing sector.

As the regulatory landscape evolves, BNPL providers will need to navigate the changing environment with caution, ensuring compliance while continuing to offer attractive payment solutions to consumers.