Consumer Reports praises New York’s proposed rules that would provide the strongest, most comprehensive consumer protections of any state
ALBANY, NY – Consumers who make purchases using buy now, pay later loans would enjoy important new protections under a set of regulations proposed by the New York Department of Financial Services today. Consumer Reports applauded New York for proposing rules that would help ensure borrowers are treated fairly and provided some of the same critical protections they get when they make purchases using a credit card.
“Buy now, pay later loans are a fast-growing way for shoppers to pay for purchases, but they lack many of the critical consumer protections that come with other forms of credit,” said Chuck Bell, special projects director at Consumer Reports. “New York’s proposed buy now, pay later regulations would provide the strongest, most comprehensive protections for consumers of any state and are a model for lawmakers across the country. These proposed rules would help make sure that lenders don’t extend credit that consumers cannot afford to repay, charge only reasonable fees, protect data privacy, and treat borrowers fairly when they dispute charges and seek refunds.”
Bell pointed out that it’s particularly important for states to adopt safeguards to protect buy now, pay later borrowers since federal regulators have rescinded some of the same protections that covered consumers nationwide. Last year, the federal Consumer Financial Protection Bureau withdrew its interpretive rule that would have given consumers the right to dispute charges and get their money back promptly just as they are guaranteed by law when they make a purchase with a credit card.
BNPL lending is a form of lending that enables consumers to split the cost of purchases into four or more payments. The most common BNPL credit involves “pay-in-four” purchases, where consumers pay 25 percent of the cost of the item at the point of sale, and the remaining balance in three payments of 25 percent over the next six weeks.
While many consumers report positive experiences with BNPL credit, complaints to the CFPB about the challenges borrowers face getting timely assistance with returns and refunds have risen in recent years, and data also increasingly show that consumers are getting into unaffordable debt with BNPL credit. Consumers often get the runaround between the merchant and the lender when they are unhappy with a purchase and can find themselves on the hook for payments when filing disputes, which can take weeks to resolve. Consumers can also lose track of when payments are due, particularly if they have multiple outstanding BNPL loans.
Users can end up paying fees if they fall behind on payments or misunderstand the terms of the loan they’ve been offered. Because BNPL loans are so fast and easy to get, this can lure consumers into making impulse purchases and taking out more loans than they can manage.
New York’s proposed regulations apply to both BNPL loans that have no interest or finance charges and BNPL installment loans that have interest and finance charges. The new rules would require BNPL lenders to:
- Provide clear disclosures explaining the terms of the loan to borrowers, including the costs, repayment schedule, dispute options, and if the loans will be reported to credit reporting agencies. These disclosures are are required to conform to what is required under the federal Truth in Lending Act.
- Provide borrowers with similar rights for disputing charges and getting refunds that consumers currently enjoy under the federal Truth in Lending Act when making purchases with credit cards.
- Charge no more than 16 percent per year for interest, unless the lender has already received an existing New York DFS license or receives a new license allowing it to charge up to 24.99 percent..
- Charge no more than $8 for late payment fees.
- Assess the borrower’s ability to repay using “reasonable risk-based underwriting”
- Maintain policies and procedures to keep accurate data about borrowers. Lenders can only use, sell, or share borrower data with the consumer’s consent after clearly disclosing how the data will be used.
The New York regulations are subject to a 10 day pre-proposal review period and 60 day public comment period.
Media contact: Michael McCauley, michael.mccauley@consumer.org