gothamist.com Open in urlscan Pro
13.249.98.65  Public Scan

Form analysis
0 forms found in the DOM

Text Content

Gothamist
A non-profit newsroom, powered by WNYC.
Gothamist
Listen Live
Donate
 
 

News


'BUY NOW, PAY LATER' HAS EXPLODED IN POPULARITY. NY WANTS TO REGULATE IT.



--------------------------------------------------------------------------------

By
Jon Campbell

Published Jan 19, 2024

13 comments

--------------------------------------------------------------------------------

Share

FacebookTwitterRedditEmail

--------------------------------------------------------------------------------

Never miss a story
 Email address

By submitting your information, you're agreeing to receive communications from
New York Public Radio in accordance with our Terms .
 
Photo Illustration by Rafael Henrique/SOPA Images/LightRocket via Getty Images

--------------------------------------------------------------------------------

By
Jon Campbell

Published Jan 19, 2024

13 comments

--------------------------------------------------------------------------------

Share

FacebookTwitterRedditEmail

--------------------------------------------------------------------------------

We rely on your support to make local news available to all

Make your contribution now and help Gothamist thrive in 2024. Donate today

Gothamist is funded by sponsors and member donations

It’s a scene any frequent online shopper would recognize.

Maybe you’re buying some luggage, a coat or some tools. You go to pay, and
there’s a spot to enter your credit card information. But just beneath that is a
second option: Maybe you’d prefer splitting it up into interest-free payment
installments?

Those pay-every-two-week microloans — known as 'Buy Now, Pay Later' and offered
by companies like Affirm, Zip and Klarna — are enormously popular with shoppers,
who can benefit from spreading out their payments at no extra cost. But they’ve
operated with limited regulation, drawing concern from state and federal
regulators that there aren’t enough consumer protections in place, leaving
people at risk of ballooning debt.

A new proposal in Gov. Kathy Hochul’s $233 billion state budget proposal would
change that in New York.

For the first time, Hochul wants to order Buy Now, Pay Later lenders to obtain a
license to operate in the Empire State — a move that would allow the state to
limit late fees, force companies to report to credit bureaus and implement other
fraud protections, much like those already required in the credit card industry.

The proposal comes as federal regulators have yet to implement rules and
guidelines of their own, despite examining the industry and raising concerns
about potential risks over the last two years. If state lawmakers approve — and
so far, they appear receptive to the plan — New York would join California in
requiring the companies to have a license to operate.



“When we see something like this and there is little to no regulation, the state
has to step up,” said state Sen. Kevin Thomas, a Long Island Democrat who chairs
the consumer protection committee. “That's exactly what the governor is doing
right now, and I applaud her for that.”

The Buy Now, Pay Later industry has exploded in popularity in recent years,
increasing from 16.8 million loans worth $2 billion in 2019, to a whopping 180
million loans worth $24.2 billion in 2021, according to a 2022 report from the
U.S. Consumer Financial Protection Bureau.

That’s partly due to the boom in online shopping during the early days of the
COVID-19 pandemic, according to Ed deHaan, a professor at the Stanford Graduate
School of Business who has studied the burgeoning industry's effects.

Now, nearly every major retailer has partnered with a company or companies on
Buy Now, Pay Later, or BNPL, products — online and, in some cases, even in
stores.

“The main thing at the end of the day is just the competitive effects,” deHaan
said. “If Walmart — just to throw out some names — starts accepting BNPL, then
Target has to do so as well, because we see that BNPL is a favored product and
consumers will change their behaviors to shop at places that offer it.”

It works like this: The lender partners with a retailer to offer the loan, which
is usually structured in four equal payments due over six weeks. The buyer gets
the product when they make their initial payment upon checkout, and then is on
the hook for three more payments, which are generally offered without interest.



Unlike normal loans, which rely on interest, the lender makes money by charging
a fee to the merchant, usually between 2% and 8% of the purchase price,
according to the CFPB. Late fees run around $7 or $8 a payment, though some
companies don’t charge late fees at all.

Under Hochul’s proposal, the state Department of Financial Services — which
oversees banks in the state — would be tasked with regulating Buy Now, Pay Later
companies that loan to New Yorkers. The agency would be required to come up with
rules to prohibit “abusive and excessive” late fees, require the lenders to
clearly lay out their terms and report their loans to the credit-reporting
agencies.

But the governor’s proposal could set up a potential lobbying battle in Albany
as she and state lawmakers negotiate a spending plan over the next two months. A
final budget is due March 31, though the governor and lawmakers have blown that
deadline in recent years.

So far, the major Buy Now, Pay Later companies are taking a cautious approach.

Penny Lee, president of the Financial Technology Association, says consumers
like having the option to split their payments, interest-free. Her organization
— which represents Klarna, Zip, PayPal and Afterpay — commissioned a poll
showing 79% of consumers who used BNPL had a positive experience.

“We look forward to working with regulators and elected leaders to balance
consumer protection with innovation so that people can continue to use the
financial tools they depend on," Lee said in a statement.



In a separate statement, Matt Gross, a spokesperson for Affirm, said the company
makes “consistent and transparent disclosures” about its terms to consumers at
checkout, doesn’t charge late fees and assesses each transaction for risk. He
said the company has “long been vocal in our support of efforts that promote
greater choice and transparency for consumers, including thoughtful regulation.”

The company also says it is open to changes to credit reporting to “account for
BNPL.”

But Gross also noted: “We are subject to extensive regulation and oversight,
both directly and indirectly, by way of our partnership with our originating
bank partners, under federal law and the laws of the states and provinces in
which we operate."

DeHaan said the extent to which Buy Now, Pay Later companies are voluntarily
offering consumer protections is “debatable.” But he said requiring them to
report to credit agencies is key.

Without that, consumers can find themselves susceptible to what’s known as “debt
stacking” — maxing out one line of credit and turning to other lines of credit
before paying off the first. If the BNPL loans are reported, then lenders can
use that information to determine whether someone should be offered a loan.

DeHaan’s research has shown Buy Now, Pay Later users tend to experience more
bank overdraft fees and credit card interest and fees than non-users. His 2022
research paper, authored with three other professors, is titled: “Buy Now Pay
(Pain?) Later.”



“I would want to sort of dig into exactly what regulations that New York is
going to introduce, but if it's ones that are sort of the basic protections that
we already see for credit cards, I think this is a great thing,” deHaan said.

The state Legislature will begin holding public hearings on Hochul’s budget
proposal next week.

Assemblymember Nily Rozic, a Queens Democrat who chairs her chamber’s consumer
protection committee, said she agrees with Hochul that the state should step in.

“These are financing products that are not covered by federal laws or
regulation,” she said. “So there's tremendous potential for states to
intervene.”




Tagged

economy
new york state
Politics
Kathy Hochul

--------------------------------------------------------------------------------

Jon Campbell
Twitter

Jon Campbell covers the New York State Capitol for WNYC and Gothamist. Prior to
that, he covered the Capitol for more than a decade for the USA TODAY Network.
He has twice earned the Walter T. Brown Memorial Award, an honor given annually
by the Legislative Correspondents Association alumni for outstanding state
government coverage. Jon grew up in the Buffalo area and graduated from the
University at Albany. Got a tip? Email Jon at jcampbell@wnyc.org or Signal
518-210-7087.

Read more

Gothamist is funded by sponsors and member donations

--------------------------------------------------------------------------------



Gothamist is funded by sponsors and member donations

--------------------------------------------------------------------------------

MORE news

Mayor Adams vetoes bill banning solitary confinement, setting up fight with City
Council

The mayor said the bill would undermine safety in the city’s jails if it were
enacted, even as he denied that solitary confinement was still used in the
facilities.

By
Michelle Bocanegra

Published Jan 19, 2024 at 5:58 p.m. ET

2 comments

--------------------------------------------------------------------------------

Is Vision Zero a success for New York City?

From our transit newsletter: Evaluating Vision Zero after a decade, a reader
question about connecting train stations and a roundup of this week’s transit
news.

By
Clayton Guse
and
Stephen Nessen
7 comments
News
Is Vision Zero a success for New York City?

From our transit newsletter: Evaluating Vision Zero after a decade, a reader
question about connecting train stations and a roundup of this week’s transit
news.

By
Clayton Guse
and
Stephen Nessen
7 comments

--------------------------------------------------------------------------------

Ex-White House staffer may avoid charges in alleged hate crime assault on NYC
halal cart worker
By
Arya Sundaram
53 comments
Extra Extra: Is New York actually in the Midwest?
By
James Ramsay
77 comments
To keep migrant students in their Brooklyn schools, activist parents try finding
them housing
By
Jessica Gould
28 comments

--------------------------------------------------------------------------------

Never miss a story

Catch up on the most important headlines with a roundup of essential NYC
stories, delivered to your inbox daily.

Sign upEmail address

By submitting your information, you're agreeing to receive communications from
New York Public Radio in accordance with our Terms .
AdvertisingContact UsOur TeamRSS FeedDiversity (DEI)Careers
Gothamist

Gothamist is a website about New York City news, arts, events and food, brought
to you by New York Public Radio.

AdvertisingContact UsOur TeamRSS FeedDiversity (DEI)Careers


--------------------------------------------------------------------------------

FacebookTwitterInstagramYoutube
Terms Of UsePrivacy PolicyAccessibility
©2023 New York Public Radio. All rights reserved.