By Errol Louis
A staggeringly bad anti-consumer bill that would allow check-cashing stores to start making loans is quietly winding its way through the state Legislature, advanced by lawmakers who ought to know better — and who happen to have received hefty donations from the check-cashing industry.
It’s a prime example of the bad effects of money in politics, and one reason so many people say things in Albany are rigged.
If approved, the proposed Community Financial Services Access and Modernization Act would bestow a new designation on check cashers as “financial services providers” and give them the ability to extend credit, which has long been explicitly banned under state law.
Consumer advocates say it’s a backdoor effort to bring the lucrative, predatory payday lending business into New York.
“Once they kick the door open to become lenders, it becomes easier for what they really have been salivating for — small-dollar, high-interest loans,” says Sarah Ludwig, executive director of the New Economy Project, a nonprofit advocacy organization. “We don’t have payday lending in New York, so a lot of people don’t understand what a plague it is.”
Outside New York, millions of Americans fall victim to the plague every year, borrowing against their own paychecks and never catching up — with many paying as much as 700% interest on loans that roll over week after week, trapping low-income borrowers in a permanent cycle of debt, bankruptcy and foreclosure.
“Too many borrowers seeking a short-term cash fix are saddled with loans they cannot afford and sink into long-term debt,” is how Richard Cordray, director of the Consumer Financial Protection Bureau, put it, comparing payday loans with “getting into a taxi just to ride across town and finding yourself stuck in a ruinously expensive cross-country journey.”
Cordray recently announced that the federal government intends to create regulations requiring payday lenders to limit the interest rates they charge and review the ability of borrowers to repay the money.
Here in New York, we can thank the heroic efforts of Benjamin Lawsky, the Cuomo administration’s former financial services superintendent, for keeping payday lenders out of our state. Lawsky not only vowed to enforce New York’s 25% usury limit against online payday lenders, he closed a loophole by declaring that debt collectors would be prohibited from collecting out-of-state payday loans in New York.
But that hasn’t stopped New York’s check cashers from trying to get into the business. Between 2010 and 2014, the industry’s PAC and individual check cashers showered more than $370,000 in donations on members of the Legislature, including $42,500 to Bronx Sen. Jeffrey Klein and his Independent Democratic Conference and $10,000 to the Bronx Democratic organization, led at the time by Assemblyman Carl Heastie, who is now the Assembly speaker.
The legislative leaders dutifully introduced a bill in 2013 that would have let the check cashers start lending at rates as high as 200%. The bill got killed thanks to Lawsky and vocal advocates like Ludwig.
But the industry’s money kept flowing. A check of state campaign finance records shows that the New York Check PAC gave Klein’s Independent Democratic Conference $5,000 last October, and throughout 2015, the PAC and industry members gave a total of $4,925 to Assemblyman Robert Rodriguez (D-East Harlem).
Lo and behold, Rodriguez has turned up as lead sponsor of the latest bill to let check cashers start making loans, along with Klein’s fellow Independent Democratic Conference member Sen. Diane Savino (D-S.I.), who is chairwoman the Banks Committee and got a $1,000 donation from the check cashers’ PAC last year.
This year’s version would allow the check cashers to make small business loans — but the bill includes no mention of underwriting standards. The reality is that many neighborhood businesses are family-owned sole proprietorships, meaning a lot of the loans would be going to individuals, opening a side door to more personal lending by check cashers on God only knows what terms.
If Albany leaders are genuinely concerned about providing credit in low-income neighborhoods, they should hold hearings on the matter and finally start funding existing organizations like the Community Development Financial Institutions Fund, a network of credit unions, loan funds and community banks that has been seeking state support for years.
It would be a good step toward dispelling the impression that state pols are more interested in serving their donors than the public good.