NYDFS Announces BNPL Regulatory Proposal Amid Budget Directive

The New York State Department of Financial Services (NYDFS) has unveiled a draft proposal for new regulations aimed at the Buy Now, Pay Later (BNPL) industry. This move follows Gov. Kathy Hochul’s FY26 budget directive, which called for stronger oversight of the rapidly growing financial sector. The proposed framework includes licensing requirements, consumer protections, and measures to address rising delinquency rates among BNPL users.

A Framework for Oversight

The proposed rules mark the NYDFS’s first comprehensive attempt to regulate BNPL lenders operating in New York. They aim to align the industry with standards applicable to other consumer loans, addressing issues such as fee transparency, data privacy, and credit reporting.

"Buy Now, Pay Later loans are increasingly popular, but these products are not subject to uniform rules regarding the disclosure of loan terms, data privacy, credit reporting, and fees that other consumer loans must adhere to", said a news release from Gov. Kathy Hochul’s office. The FY26 budget law, championed by Hochul, established the foundation for these regulations, requiring BNPL providers to operate under a licensing and supervision framework.

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Addressing Consumer Risks

As BNPL services gain traction, concerns about consumer debt have risen sharply. According to a LendingTree survey, 23% of BNPL users have three or more active loans at the same time, raising concerns about "stacking" behavior and hidden debt. Compounding this problem, late payments among BNPL users have surged. The survey found that 41% of users reported missing at least one payment in the past year, up from 34% in the previous year. Additionally, over half of all BNPL users (54%) have paid late at least once in their borrowing history.

This growing trend has financial regulators concerned about the lack of transparency surrounding these short-term loans, which often do not appear on traditional credit reports. "It is our responsibility to ensure that innovation is paired with strong consumer protections, so that New Yorkers can safely and securely use new financial products", said NYDFS Acting Superintendent Kaitlin Asrow in the governor’s news release.

Key Regulatory Measures

The proposed regulations introduce a range of consumer safeguards and operational requirements for BNPL companies:

• Licensing Requirements: BNPL providers must obtain a license from the NYDFS and secure specific permissions to offer either interest-free or interest-bearing loans.
• Underwriting Standards: Lenders will be required to evaluate a consumer’s income and overall indebtedness to ensure their ability to repay loans.
• Fee and Cost Restrictions:
  • Interest rates for BNPL loans must comply with limits set by New York’s General Obligations Law.
  • Late fees are capped at $8 unless lenders justify higher fees to the DFS. Total penalty fees cannot exceed the original loan amount.
  • Soliciting "tips" from consumers is prohibited unless explicitly disclosed as voluntary and unrelated to loan terms.
• Consumer Protections:
  • Lenders must provide clear pre-transaction disclosures, including the amount financed, finance charges, APR (if applicable), and payment schedules.
  • Dispute resolution standards require lenders to acknowledge billing error notices within 30 days and resolve them within 90 days.
  • Refunds from merchants must be credited to consumers’ accounts within three business days.
  • The use or sale of consumer data for targeted advertising or cross-selling is prohibited without explicit opt-in consent.

Implementation Timeline

The draft regulation has entered a 10-day preproposal comment period, which began on February 23, 2026. A 60-day public comment period will follow once the regulations are published in the New York State Register. If adopted, the regulations will go into effect 180 days after the final notice of adoption is published. BNPL providers already operating in New York will also benefit from a transitional compliance period.

As BNPL services continue to grow in popularity, the NYDFS’s proposed framework seeks to ensure that innovation in the financial sector does not come at the expense of consumer protections. The public and stakeholders are encouraged to review the proposal and provide feedback during the comment period.

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