By Rick Karlin
Gov. Andrew Cuomo and his financial services Superintendent Ben Lawsky are announcing a crackdown this morning on on-line payday lenders who charge annual interest rates as high as 1,095 percent.
Here are the details, along with one of the letters sent to banks that have been working with some of these internet lenders:
Governor Andrew M. Cuomo announced today that his Administration demanded 35 online companies cease and desist offering illegal payday loans to New York consumers. An extensive, ongoing New York State Department of Financial Services (DFS) investigation uncovered that those companies were offering payday loans to consumers over the Internet in violation of New York law, including some loans with annual interest rates as high as 1,095 percent.
Governor Cuomo also announced today that Benjamin M. Lawsky, Superintendent of Financial Services, sent letters to 117 banks – as well as NACHA , which administers the Automated Clearing House (“ACH”) network and whose board includes representatives from a number of those banks – requesting that they work with DFS to cut off access to New York customer accounts for illegal payday lenders. Illegal payday loans made over the Internet are made possible in New York by credits and debits that must pass through the ACH network. The Cuomo Administration is requesting that those banks and NACHA work with DFS to create a new set of model safeguards and procedures to cut off ACH access to payday lenders.
“Illegal payday lenders swoop in and prey on struggling families when they’re at their most vulnerable – hitting them with sky-high interests rates and hidden fees,” said Governor Cuomo. “We’ll continue to do everything we can to stamp out these pernicious loans that hurt New York consumers.”
Superintendent Lawsky said: “Companies that abuse New York consumers should know that they can’t simply hide from the law in cyberspace. We’re going to use every tool in our tool-belt to eradicate these illegal payday loans that trap families in destructive cycles of debt.”
Superintendent Lawsky also issued a letter today to all debt collection companies operating in New York specifically directing them not to collect on illegal payday loans from the 35 companies DFS’s investigation has identified to date. Previously, in February, Superintendent Lawsky sent letters to all debt collectors in New York stating that it is illegal to attempt to collect a debt on a payday loan since such loans are illegal in New York and any such debts are void and unenforceable.
Payday loans are short-term, small-value loans that are typically structured as an advance on a consumer’s next paycheck. Oftentimes payday lenders debit only the interest and finance charges from a consumer’s account – even though a consumer may believe they are paying down principal, which effectively extends the length of the loan. In most cases, consumers must affirmatively contact the payday lender if they actually want to pay off the loan.
Payday lending is illegal in New York under both civil and criminal usury statutes. In some cases, however, lenders attempt to skirt New York’s prohibition on payday lending by offering loans over the Internet, hoping to avoid prosecution. Nonetheless, Internet payday lending is just as unlawful as payday lending made in person in New York.
“Governor Cuomo and Superintendent Lawsky are taking exactly the right approach here — not only demanding that online payday lenders stop making illegal loans to New Yorkers, but also holding accountable banks and the payment system itself, which make this usurious and extremely exploitative lending possible in the first place,” said Sarah Ludwig, co-director of New Economy Project (formerly NEDAP). “With this action, New York is showing what it means to regulate financial services in the public interest, while also promoting the integrity of the banking system.”