New York has introduced legislation that will bring buy now pay later (BNPL) lenders under stricter oversight, in the first state-level licensing regime for BNPL. The Senate Bill is intended to address the risk that BNPL products may encourage people to make purchases they otherwise couldn't afford, causing harm to some financially vulnerable consumers.
This development comes after the Consumer Financial Protection Bureau (CFPB) stated in May 2025 that it would deprioritise enforcement actions based on the regulation governing BNPL loans, intending instead to allocate resources towards more urgent consumer protection issues.
Consumers missing payments as BNPL usage rises
BNPL usage continues to increase, with a recent study showing that 76% of consumers in the US have used BNPL. However, the same study reveals that 49% of BNPL users have missed a payment, and 62% of respondents can have as many as five BNPL loans at the same time.
This comes against the backdrop of rising defaults among US householders. According to the New York Federal Reserve, the debt delinquency rate rose to 4.4% in Q2 2025, the highest level since the first quarter of 2020. Inflation has contributed to the rise in BNPL. For example, 25% of survey respondents needed to use BNPL services for groceries, up from 14% in 2024.
New rules for BNPL lenders
Once the legislation comes into force, among other rules, BNPL lenders will need to comply with the following:
Risk-based underwriting and creditworthiness checks
BNPL lenders must maintain policies and procedures for “reasonable risk-based underwriting”, taking into account the applicants' credit worthiness, standing or capacity.
Limitations on interest and charges
Lenders will be prohibited from charging interest and charges above a level set by the Department of Financial Services (DFS). Any interest charged must be clearly disclosed to the consumer, and to which the consumer has agreed.
Refunds and disputes
Lenders will have to comply with requirements around refunds and consumer disputes for goods purchased via a BNPL loan.
Disclosure requirements
These will need to comply with applicable federal regulations, including Regulation Z in The Truth in Lending Act (TILA). For example, lenders must clearly disclose to consumers the terms of their BNPL loans, including interest, fees, repayment schedule, billing practices, how to dispute a bill and whether the transaction will be reported to a credit reporting agency.
BNPL business models – four key areas of impact
BNPL lenders need to understand what the impact of the new rules may be on their business models. For example:
1. Risk-based underwriting and creditworthiness checks
While many BNPL lenders already undertake credit checks, careful thought needs to be given as to what information to request from the consumer and how to verify that information. And how to integrate any creditworthiness assessments, given that speed and ease of application at checkout has been key for the sector, enabling rapid growth.
There could be a reduction in BNPL transactions due to the need to undertake creditworthiness assessments. Given that the BNPL sector is a high-volume, low margin sector, lenders should seek to understand what impact these new rules may have on origination volumes, arrears rates, and consequently, the financial strength of the company.
2. Limitation on interest and charges
BNPL lenders source revenue streams from the fees charged to merchants, as well as from late payment charges and, in some cases, interest charges.
The implementation of a cap on interest and charges means that lenders must carefully navigate the balance between setting acceptable interest and charges versus setting the merchant fee. Any increases to merchant fees may adversely impact retailers already operating in a challenging market. BNPL lenders will be aware that in a competitive environment, there'll be other lenders wanting to work with retailers.
3. Refunds and consumer disputes
A high number of returns, refunds and customer complaints can put pressure on a lender, impacting cash flow as well as increasing operational costs. Merchandise returns have doubled since 2019, and now constitute around 17% of sales. Lenders may want to undertake careful due diligence when choosing retail partners as retailers that generate a disproportionate number of returns relative to the profitability they bring may undermine the lender.
Lenders also need to be aware of the administrative costs of implementing and running a robust and efficient complaints handling process, together with staff training to manage them.
4. Disclosure requirements
Lenders will need to implement systems and processes to ensure they comply with disclosure requirements in the most efficient way.
The announcement in June that FICO will include BNPL loans in its credit score calculations could further impact the sector. Lenders will have greater visibility into consumers’ borrowing and repayment behaviours, and certain cohorts of borrowers may find it harder to access BNPL products. Understanding the impact of this development on origination volumes and default rates will be key.
What can lenders do to prepare?
The New York BNPL Act will take effect 180 days after the state’s DFS issues final regulations. Firms will need to implement strong internal controls to ensure regulatory compliance, and they should identify any additional resource requirements now.
Assessing the potential impact of the new rules on a lender’s operational and financial resilience is important, especially given the sector’s reliance on external capital, higher consumer default rates and increased competition in the sector.
Granular financial modelling, including cash flow forecasting and scenario testing, can provide greater visibility of any areas of potential stress or vulnerability. This allows firms to take action in order to ensure a sustainable and successful business model.
For more insight and guidance, get in touch with Chris Laverty.
New BNPL rules in the US: financial resilience is key
