New York State Governor Kath Hochul announced on Tuesday (2 January) that she plans to propose legislation that would require buy-now-pay-later (BNPL) providers to acquire a license to operate in the state.
New York State would be one the first US polities to introduce such legislation, and the governor’s office says that it would also establish regulations in line with other loan services, including disclosure requirements, credit reporting standards, late fee limits and consumer data privacy protections.
New York would not be the first US state to regulate BNPL, though. Afterpay and Klarna withdrew the availability of their services in New Mexico due to state regulations that came into effect on 1 January 2023. House Bill 132, Interest Rates for Certain Loans, amended the New Mexico Small Loan Act and New Mexico Bank Installment Act and serves to limit late fees. The withdrawal from New Mexico of the BNPL services strongly suggests that the BNPL app model depends on late fees.
BNPL services allow consumers to pay for goods in a series of interest-free instalments with minimal or no credit checks, making them appealing to those on lower incomes or with poor credit ratings.
The rise of these services has been a global cause for concern, with UK advocacy group Citizen’s Advice issuing a warning over unregulated seasonal spending in November of last year and the Bank for International Settlements (BIS) explaining that “the typical profile of a BNPL user appears high-risk.”
The BIS also detailed the problems faced by the sector in achieving profitability, largely due to high operating costs that are not matched by the fees charged to merchants in order to utilise their platform.
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Meanwhile, UK non-profit the Centre for Financial Capability reported this week that almost one-quarter of UK BNPL users have been liable for late fees.
One of the largest global BNPL providers, Australia’s Afterpay, mentioned loss in its top five keywords from 2019 to 2021, when it was bought by US fintech Block.
Greater oversight of the sector has been mooted for years. The Consumer Financial Protection Bureau issued a report on the risks of BNPL in 2022, promising to take steps toward regulation, and California has required licenses for providers since 2020. National legislation is still missing, however.
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