New York Includes Buy Now, Pay Later Licensing in Final Budget

New York is moving forward with strict new licensing requirements and other rules for buy now, pay later companies.

New York Gov. Kathy Hochul (D) and state lawmakers agreed to include the provisions in the state’s $254 billion budget deal.

Under the legislation, slated for a final vote as soon as Wednesday, buy now, pay later companies would be required to get a license from New York’s Department of Financial Services to operate in the state.

The measure also says that interest rates on buy now, pay later loans can’t exceed the state’s 16% cap and must carry some credit card protections mandated by the federal 1968 Truth in Lending Act.

Buy now, pay later loans allow customers to split payments into four equal installments paid over six weeks. Lenders typically don’t charge interest on the loans, but some providers charge service or convenience fees and late fees.

New York lawmakers are planning to exempt national banks that issue buy now, pay later loans through partnerships with fintech providers from the proposed licensing and other requirements. But New York state banks and banks with charters from other states offering loans to New York residents would be required to comply.

Hochul announced her intention to regulate buy now, pay later companies ahead of budget negotiations last year, but the provisions didn’t make it into the final package. New York’s buy now, pay later requirements are included in the Transportation, Economic Development, and Environmental Conservation section (S-3008, A-3008) of the budget legislation for fiscal 2026.

‘Square Peg in a Round Hole’

Industry groups say New York’s proposed licensing regime is a poor fit for buy now, pay later products.

“It still feels like a square peg in a round hole,” said Penny Lee, the president and CEO of the Financial Technology Association.

Several buy now, pay later providers such as Zip Co., Block Inc., and Klarna Bank AB are FTA members.

BNPL providers argue annual percentage rates aren’t a good way to measure the costs of their loans because of their short-term, closed-ended nature. APRs work better in measuring the costs of long-term loans such as mortgages or revolving credit for credit cards, providers say.

The Consumer Financial Protection Bureau under former Director Rohit Chopra attempted to apply some credit card protections, including dispute resolution requirements and regular billing statements, to buy now, pay later loans in a May 2024 interpretive rule.

But the FTA sued to block that rule, and the CFPB under acting Director Russell Vought, a Trump appointee, said it plans to revoke it.

The CFPB on Tuesday said it wouldn’t enforce the buy now, pay later interpretive rule while it focuses on other priorities such as threats to consumers who are service members and veterans.

Parity Questions

New York’s coming buy now, pay later regime has the potential to upend long-settled banking law in the state.

The state’s regulatory requirements are the same for banks regardless of whether they’re chartered by a federal agency, New York, or another state under New York law. But the buy now, pay later measure would require state-chartered banks that issue the loans to apply for a license and be subject to new restrictions, while national banks would be exempt.

“This is outside the norm not to treat nationally chartered banks and state-chartered banks and out-of-state chartered banks equally,” Lee said.

There is a chance New York lawmakers could revise the legislation before the Department of Financial Services writes rules to implement it. Otherwise, the new law is likely to face litigation seeking to overturn it.