'Buy Now, Pay Later' has exploded in popularity. NY wants to regulate it

Jon Campbell

Originally published in Gothamist on .

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.