On July 15, NYDFS issued a proposed rule to implement New York’s Buy-Now-Pay-Later Act, establishing licensing, disclosure, and consumer-protection requirements for lenders that offer buy-now-pay-later (BNPL) loans to consumers. The rule defines a BNPL loan as closed-end credit extended to a consumer for a particular purchase of goods or services, excluding motor vehicles, mortgages, credit extended for other than personal, family or household use, and, subject to a narrow exception, credit extended by the seller of the goods or services. Under the proposal, any person other than an exempt organization or an authorized lender must obtain a license from the superintendent to act as a BNPL lender and must secure a “category permission” specifying whether the lender may offer interest-free loans, interest-bearing loans, or both.

Licensees must maintain sufficient capital to ensure their solvency and ongoing operations and must file a corporate surety bond or, in lieu of a bond, deposit eligible assets with a depository acceptable to the superintendent, in an amount set to cover their outstanding obligations to consumers. The rule caps interest on interest-bearing loans at the rate permitted under the General Obligations Law and limits penalty fees to $8 absent superintendent approval of a higher, cost-based fee, with the cumulative amount of all such fees barred from exceeding the original amount financed. Lenders are also barred from charging any fee for prepayment, barred from imposing a separate fee for a consumer to pay by a given method unless that method involves expedited service by a customer service representative, and must apply undesignated payments to principal before interest or fees. Lenders must perform risk-based underwriting assessing a consumer’s income and indebtedness, and may not use the creditworthiness of a consumer’s social network to determine credit availability or pricing.

As previously covered in this Orrick Insight, NYDFS’s pre-proposal outreach draft published in February would have permitted lenders to solicit tips only under specified conditions, with noncompliant tips returned to the consumer, and would have applied the broader solvency standard as a capital requirement only as a fallback; the formally proposed rule drops the tips provision entirely and instead makes the solvency standard the default capital requirement. The proposed rule requires licensees to disclose their licensed status in all advertising, retain advertising materials for examination, and refrain from false, misleading, or deceptive representations. It also requires lenders to furnish consumers with pre-transaction disclosures before a loan closes, post-transaction confirmations within one business day, and periodic statements covering an account’s balance, fees, and interest charges. Licensees must file quarterly unaudited financial statements and annual audited statements with NYDFS.

The rule sets procedures for resolving billing-error disputes, caps a consumer’s liability for unauthorized use at $50, and restricts lenders from using, selling or sharing a consumer’s covered data without separate, revocable consent for each use, which may not be made a condition of obtaining a BNPL loan. Lenders must also maintain a toll-free customer service line and establish written procedures to resolve consumer complaints. The formally proposed rule also newly amends 23 NYCRR Part 101, a provision absent from the February draft, to add BNPL lenders to the licensed financial services providers industry group for assessment purposes. Comments are due by September 14, and the regulation takes effect 180 days after publication of the notice of adoption, after which existing BNPL lenders would have 45 days to apply for a license or category permission to continue operating lawfully.