Alston & Bird Consumer Finance Blog


California Settlement Offers Reminder that Buy Now Pay Later Participants are Subject to California Financing Law

In August 2022, the California Department of Financial Protection and Innovation (“Department” or “DFPI”) entered into a consent order with a company offering point of sale financing products that the DFPI deemed to be buy now, pay later (“BNPL”) financing, for which a California Financing Law (“CFL”) license is required. The company is required to pay a penalty, refund previously collected fees from California residents, and obtain a CFL license.

The settlement follows an annual report released in October of 2021 in which the DFPI noted a sharp increase in BNPL “consumer loans.” In the accompanying press release to that report, the DFPI stated:

BNPL loans are an increasingly common type of short-term financing that allows consumers to make purchases and pay for them at a future date, often interest-free. Sometimes referred to as point-of-sale installment loans, BNPL products are becoming a popular payment option. The report shows a surge in BNPL unsecured consumer loans reported to the DFPI. This product has grown in recent years and has come under the DFPI regulatory umbrella.

The press release also noted that the Department had rendered prior legal opinions and entered into settlements with three separate BNPL / point-of-sale financers in 2019 and 2020 that were deemed to be structuring their BNPL products in a manner designed to evade regulation under the CFL. These companies had agreed to refund fees to consumers and obtain CFL licenses, and among other requirements, must: (i) consider consumers’ ability to repay loans, (ii) comply with rate and fee caps, and (iii) respond to consumer complaints

In one of those prior opinions, the DFPI (formerly, the Department of Business Oversight) asserted that the CFL applies to making consumer loans and noted that the CFL defines “consumer loan” as a loan “the proceeds of which are intended by the borrower for use primarily for personal, family, or household purposes.” (Note that loans in the principal amount of $5,000 or less for other than personal, family, or household purposes are also included in the definition, bringing certain commercial or business-purpose loans within the scope of the CFL). The Department further stated that the CFL incorporates certain aspects of the common law, including that merchants may sell goods in exchange for cash or in exchange for a consumer’s promise to pay later (a “credit sale”) and that a merchant may charge a premium for credit sales without the transaction being subject to the state’s loan laws and without the premium being subject to the state’s usury limit. The DFPI concluded, however, that “[e]xtensive third-party involvement may cause transactions to be deemed loans even if the underlying credit sale is bona fide.”

Taken together, the Department’s prior statements, opinions, and enforcement actions signal a broad interpretation of the CFL that could potentially apply to many lenders and third parties involved in point-of-sale financing, including the offering of buy now, pay later products. In the press release accompanying the most recent enforcement action, the DFPI concluded that it “continues investigating other companies offering Buy Now, Pay Later products.”

Arizona Seeks to Improve FinTech Sandbox with HB 2177

A&B ABstract: Arizona launched a first-in-the-nation FinTech Sandbox in August 2018, which has been a successful venture by the state. Arizona seeks to improve this program with the enactment of HB 2177 and the Arizona Attorney General Office’s involvement in the CFPB’s American Consumer Financial Innovation Network.

Arizona’s FinTech Sandbox

In August 2018, Arizona was the first state to launch its “FinTech Sandbox” to ease state regulatory burdens for persons offering innovative financial technologies. (The July 2019 Alston & Bird LLP Structured Finance Spectrum provides further details).  This program allows such persons to register with the Attorney General’s Office and conduct limited tests of their technologies under its supervision without otherwise complying with more burdensome licensing and regulatory requirements. Arizona Attorney General Mark Brnovich has touted the success of this program, stating that it is “the most active and successful regulatory sandbox in North America.”

House Bill 2177

To improve this program, Arizona enacted HB 2177, which:

  • Makes businesses that provide a “substantial component of a financial product or service” eligible to participate, which will (i) allow for tests of products that affect how financial services are provided in the marketplace even if the product itself is not regulated and (ii) enable regulatory technology (“RegTech”) products to now seek entry into the program as stand-alone participants;
  • Requires applicants to demonstrate the cybersecurity measures they will undertake as part of a sandbox test to ensure consumer data remains private and protected; and
  • No longer requires that sandbox tests involving payments involve the participation of Arizona residents, as long as the transaction occurs in Arizona.

In a recent announcement regarding HB 2177, Attorney General Brnovich also announced his office’s participation in the American Consumer Financial Innovation Network (“ACFIN”).  ACFIN is a new CFPB initiative that seeks to bring together state and federal financial services regulators to collaborate on innovation-fostering programs like the FinTech Sandbox.  Given his office’s experience administering the program, Brnvich is encouraged by the federal efforts evident in ACFIN.


In addition to Arizona, Alabama, Georgia, Indiana, South Carolina, Tennessee and Utah are members of ACFIN. We are keeping our eyes on ACFIN, as we believe this to be an important initiative, and look forward to what is to come.

New York DFS Launches Research and Innovation Division

A&B Abstract:

In an effort to position itself as the “Regulator of the Future,” the New York State Department of Financial Services (“NYDFS”) recently launched the Research and Innovation Division, which will be responsible for ensuring that the NYDFS keeps pace with the rapid changes in all sectors of the financial services industry.

Earlier this year, the NYDFS announced the creation of two other divisions, Consumer Protection & Financial Enforcement Division and the Cybersecurity Division of the NYDFS.  We addressed those developments in a previous post.

Creation of the Division

On July 23, 2019, Linda A. Lacewell, the Superintendent of the New York State Department of Financial Services (“NYDFS”), announced the establishment of a new Research and Innovation Division  (“Division”). Superintendent Lacewell remarked; “The financial services regulatory landscape needs to evolve and adapt as innovation in banking, insurance and regulatory technology continues to grow. This new division … position[s] the DFS as the regulator of the future, allowing the [NYDFS] to better protect consumers, develop best practices, and analyze market data to strengthen New York’s standing as the center of financial innovation.”

Division Responsibilities

Superintendent Lacewell established the Division so that New York “remains the jurisdiction of choice for innovators.” The Division is tasked with supporting internal transformation and market innovation. Importantly, the Division will be responsible for:

  • Licensing and supervising virtual currencies;
  • Assessing new efforts to use technology to address financial exclusion;
  • Identifying and protecting consumer data rights; and
  • Encouraging innovations in the financial services marketplace to preserve New York’s competitiveness as a financial innovation hub.

Division Leadership

Along with the creation of the Division, Superintendent Lacewell announced several leadership appointments within the Division. Matthew Homer will lead the Division as Executive Deputy Superintendent. Prior to this appointment, Mr. Homer was the Head of Policy and Research at Quovo, a New York fintech company providing open banking functionality for the financial services ecosystem, leading up to the company’s acquisition by fintech company Plaid, where he has worked since. Matthew Siegel and Olivia Bumgardner will be Deputy Superintendents of the Division. Mr. Siegel most recently served as a Trial Attorney in the Antitrust Division of the U.S. Department of Justice. Ms. Bumgardner is currently Director of Research for the NYDFS.  She has served as an economist responsible for the analysis of the NYDFS’ most complicated financial transactions and a leader of the NYDFS’s key initiatives relative to virtual currency, cybersecurity and financial inclusion. Andrew Lucas will serve as Counsel to the division. Previously, Mr. Lucas served as the Director of the NYDFS’s Department of Financial Innovation.


The creation of the Division marks a substantial change in the NYDFS’s relationship with rapidly evolving financial services technology companies. We believe that this will impact such companies that do business in New York, particularly those seeking BitLicenses with the NYDFS. We are actively monitoring the development of the Division, and are hopeful that this results in more favorable treatment of fintech companies by the NYDFS.