States Clash over BNPL Rules amid Federal Retreat

The state regulation of BNPL faces increasing strain as payment and card regulations become decentralized in the U.S.

An emerging regulation gap is transforming the U.S. BNPL market, with federal regulations on the industry declining and states following different strategies. The transition generates uncertainty in the wider payments and cards ecosystem, where enterprises are operating in a varied regulation of lending and licensing and consumer protection roles.

The state of New York has been extremely strict in how it treats BNPL products, and they are having similar treatment as the credit cards, but the state of Nevada has been relaxed on the conditions of operation. The bulk of the other states enforce the current lending or payday regulations, although the enforcement is unbalanced, the executives of the industry assert.

Debt payments are also on the increase as the use of BNPL increases, as over 15 percent of consumers used it last year. This has increased the questioning of the manner in which the rules on payments and cards should be used on pay-in-four models, long-term loans, and interest-bearing products provided by companies such as Klarna, Affirm, and Afterpay.

With the rescission of federal Consumer Financial Protection Bureau directives, states now face the choice of the extent to which they wish to constrain BNPL. Others, such as California and Maryland, have already enforced it. The rest are unsure whether BNPL is within their current statutes.

Critics of the patchwork claim that it might overburden smaller players, but bigger fintech companies and banks might accustom themselves more smoothly. As the number of consumers using it also rises, and the risk of late payments increases, analysts believe that enhanced, consolidated payments and card protection are more urgent than ever.

The future of the BNPL regulation as a field, along with its influence on the payment and cards market, will continue to rely on the decisions made on the state level.