The proposals outlined in the Agenda seek to significantly expand New York’s consumer protection laws, marking the most comprehensive update since 1980. On January 17th, we then received our first glance at what these expanded consumer protections may look like when Governor Hochul released the proposed Executive Budget for fiscal year 2025 (the Proposed Budget).
Enhanced consumer protections
Among the many proposals in the Proposed Budget is the “Consumer Protection Act” (the CPA). While New York law currently shields residents from deceptive business practices,2 Governor Hochul contends that amendments to the laws are imperative to address a critical gap, as the state is one of eight others in the United States without specific rules against unfair and abusive business practices. To address this, the CPA would amend New York’s General Business Law such that “[u]nfair, deceptive or abusive acts or practices in the conduct of any business, trade or commerce or in the furnishing of any service in this state are hereby declared unlawful.” The CPA would also add the following definitions of unfair and abusive acts or practices:
- An act or practice is unfair when it causes or is likely to cause substantial injury, the injury is not reasonably avoidable, and the injury is not outweighed by the countervailing benefits to consumers or competition.
- An act or practice is abusive when it:
- materially interferes with the ability of a person to understand a term or condition of a product or service; or
- takes unreasonable advantage of: (A) a person’s lack of understanding of the material risks, costs, or conditions of the product or service; or (B) a person’s inability to protect their interests in selecting or using a product or service.
These definitions generally mirror the definitions of such terms under the Consumer Financial Protection Bureau’s prohibition on unfair, deceptive, or abusive acts or practices.
The CPA also fortifies the New York Attorney General’s (NYAG) ability to enforce consumer protections, as the NYAG would now be able to bring an action to enjoin any unfair, deceptive, or abusive acts or practices when it believes that any person or entity has engaged in, or is about to engage in, any such acts or practices. Interestingly, while framed as the Consumer Protection Act, the CPA would also make clear that such actions by the NYAG may be brought regardless of whether the underlying violation involves a consumer or business, or involves the offering of a good or service for personal, family or household purposes.
Buy Now, Pay Later regulation
Also central to the Agenda is also a proposal mandating that BNPL providers obtain a license to operate in New York, and entrusting the New York State Department of Financial Services (NYSDFS) with the authority to proactively propose and enforce regulations for the BNPL industry. To this end, the Proposed Budget includes adding a new article to New York’s Banking Law (the BNPL Act) that would apply to “Buy-Now-Pay-Later Lenders,” which is defined as any person who offers a “buy-now-pay-later loan” in New York (BNPL Lender). “Buy-Now-Pay-Later Loan” is defined, in turn, as credit provided to a consumer in connection with such consumer’s particular purchase of goods and/or services (other than a motor vehicle) (BNPL Loan).
Notably, BNPL Loan is defined quite broadly, as it is defined without any reference to the imposition of any finance charge or to the number of required payments. It is generally understood that BNPL providers have historically avoided falling within scope of the federal Truth in Lending Act/Regulation Z (TILA) by virtue of neither imposing a finance charge nor requiring repayment in more than four installments. It therefore appears that BNPL providers could fall within scope of the BNPL Act in New York and yet fall outside the coverage of TILA.
The key parts of the BNPL Act include:
- License requirement – BNPL Lenders must obtain a license from NYSDFS. The BNPL Act defers the requirements for the form and contents of the application for a license to NYSDFS, though the BNPL Act sets out that applicants must submit an affidavit of financial solvency noting such capitalization requirements and access to such credit as NYSDFS may require.
- NYSDFS examination – NYSDFS will have the power to investigate BNPL Lenders or any other person as necessary to determine if they have violated the BNPL Act. In addition, NYSDFS will have the power to examine the books, records, accounts, and documents used in the business of any licensee as deemed necessary to determine whether the licensee has violated the BNPL Act or other applicable law.
- Limitations on charges – BNPL Lenders will be subject to New York’s usury and interest rate limits. Specifically, BNPL Lenders may not (directly or indirectly) charge, contract for, or receive any interest, discount, or consideration upon a BNPL Loan greater than the rate permitted by New York’s usury statute.
- Disclosure requirements – A BNPL Lender must provide clear and conspicuous disclosures of the terms of its BNPL Loans, which must include the cost (e.g., interest and fees), repayment schedule, and other material conditions.
- Ability to repay obligation – BNPL Lenders must, prior to providing a BNPL Loan to a consumer, make a reasonable determination that such consumer has the ability to repay the BNPL Loan. The BNPL Act notes that this requirement is subject to any regulations promulgated by NYSDFS.
- Returns, refunds, and credits – BNPL Lenders must handle returns of, and refunds and credits for, goods or services purchased in connection with a BNPL Loan in a manner that is fair, transparent, and not unduly burdensome to consumers. In addition, BNPL Lenders must maintain policies and procedures regarding their handling of returns, refunds, and credits, and must disclose to consumers the process by which they can return and obtain refunds or credits.
- Prohibition on penalties and fees – BNPL Lenders must not charge any unfair, abusive, or excessive penalties or fees in connection with a BNPL Loan.
- Limitations on use of consumer data Use of Consumer Data – BNPL Lenders must disclose to a consumer to which it provides a loan how such consumer’s data may be used by the BNPL Lender and provide the consumer the opportunity to provide or withdraw consent.
Governor Hochul’s strategic focus on the BNPL sector seemingly stems from her acknowledgement of the growing reliance of New Yorkers on these products as an alternative to traditional credit products. She also appears to have the support of NYSDFS Superintendent Adrienne Harris, who suggested that regulation of the BNPL industry is necessary to ensure that New York residents do not continue “racking up debt” with companies that are not licensed or otherwise regulated in New York.
New York is of course not new to being an early mover in regulating new industries. These efforts to require licensing and regulatory oversight of the BNPL industry echoes the state’s efforts with its BitLicense regime, where it was the first state to adopt an entirely new regime for the regulation of virtual currency business activity (as opposed to regulating such activity under its current money transmission laws or amending its money transmission laws to encompass such activity).
Stay tuned for updates on this topic, as the precise approach NYSDFS will take for its regulation of BNPL, licensing standards, ability to repay obligations, and other consumer-protection obligations remains to be seen. Time will also tell how New York’s proactive stance on BNPL will be received by the broader industry and if or when other states may dip their toes into new regulation in the BNPL space.
[1] While there are several types of BNPL products, BNPL is generally thought of as a financing option that allows a customer to split a retail purchase into smaller installments and repay the amount over time, and which carries no or low interest if fully paid back as agreed.
[2] See N.Y. Gen. Bus. Law § 349(a).
