senate Bill S4036

Prohibits foreign banking corporations from issuing payday loans

download pdf

Sponsor

Bill Status


  • Introduced
  • In Committee
  • On Floor Calendar
    • Passed Senate
    • Passed Assembly
  • Delivered to Governor
  • Signed/Vetoed by Governor
view actions

actions

  • 05 / Mar / 2013
    • REFERRED TO BANKS
  • 08 / Jan / 2014
    • REFERRED TO BANKS

Summary

Prohibits foreign banking corporations from issuing payday loans; defines payday loans as any transaction in which a short-term cash advance is made to a consumer in exchange for (i) a consumer's personal check or share draft, in the amount of an advance plus a fee, where presentment or negotiation of such check or share draft is deferred by agreement of the parties until a designated future date; or (ii) a consumer's authorization to debit the consumer's transaction account, in the amount of the advance plus a fee, where such account will be debited on or after a designated future date.

do you support this bill?

Bill Details

See Assembly Version of this Bill:
A2962
Versions:
S4036
Legislative Cycle:
2013-2014
Current Committee:
Senate Banks
Law Section:
Banking Law
Laws Affected:
Add §202-k, Bank L; add §5-532, Gen Ob L
Versions Introduced in Previous Legislative Cycles:
2011-2012: A3288, A3288
2009-2010: A1484, A1484
2007-2008: A722, A722

Sponsor Memo

BILL NUMBER:S4036

TITLE OF BILL: An act to amend the banking law and the general
obligations law, in relation to prohibiting foreign banking
corporations from engaging in high-cost payday loans

PURPOSE OR GENERAL IDEA OF BILL:

To prohibit foreign banking corporations from issuing payday loans.

SUMMARY OF SPECIFIC PROVISIONS:

Amends § 202 of the Banking Law and § 5 of the general obligations law
to accomplish the above stated purpose.

EXPLANATION OF THE LEGISLATION:

Banking corporations that are outside of New York should be prohibited
from making payday loans because the annual percentage rates on these
loans are astronomical, many lenders use shady tactics to collect
payments, and they also target those with low income. According to
recent studies the predatory lending industry has been rapidly growing
across the country. This includes payday loan companies which offer
small sum, short-term, high-rate, unsecured personal loans. These
loans go by many names, including "payday loans," "cash advance
loans," "postdated check loans" or "deferred deposits." Payday lenders
advance cash loans to consumers who agree to repay the amount, plus a
finance fee, with a post-dated check. The lender agrees to hold the
check until the customer's next payday, up to 30 days. At that time,
the borrower may redeem the check with cash, allow the lender to
deposit the check or roll over the loan by paying another fee.

For example, an individual borrows $200 until his/her next paycheck.
That individual writes a postdated check to a payday lender for $230
(15% of $200 = $30 lender's fee + $200 loan amount = $230) and get
$200 cash in return. The $30 fee for the loan calculates to an Annual
Percentage Rate (APR) of 391%. The payday lender may also charge you a
one-time fee of $10 to setup an account_ If the loan cannot be repaid
in the agreed-upon 14 days, the individual may elect to extend the
loan for another two weeks by paying an additional $30. A rollover of
the loan will then have a $60 lender's fee for a one-month loan of
$200. If the loan is extended for a total of six months, a person ends
up paying $360 in fees, without having paid back any of the principal
(the original $200).

On average, consumers are now paying 400 percent or more for Payday
loans. Payday lenders can also resort to bullying tactics, such as
threatening criminal prosecution for writing a bad check, leaving
borrowers with few options but to rollover the debt or default on
other debts. Moreover, payday lenders target the working poor. For
those living paycheck to paycheck, with little or no ability to secure
credit from banks for loans large or small, payday loans may appear
the only alternative for quick cash, irrespective of the interest
rate. Therefore, lenders are able to take advantage of low-income
borrowers.


A study conducted by The Woodstock Institute found that 19 percent of
payday loan customers make less than $15,000 a year, and another 38
percent make between $15,000 and $25,000. The Woodstock Institute's
report also noted that debt is steadily increasing while personal
savings are decreasing for low-income households.

This legislation ensures that no foreign banking corporation shall
make any payday loans, either directly or indirectly. It preserves the
ability of the state to protect consumers against abusive payday
lending practices. In New York, lenders would be in violation of
190.40 of the New York State Penal Code if the loan advanced results
in an annual interest rate in excess of 25 percent. Since there are
strict restrictions placed on payday lenders in New York State, payday
lenders ally with out-of-state banking corporations to get around
state laws. This bill would eliminate this loop hole and provide
consumers with affordable interest rates on loans.

JUSTIFICATION:

This bill would protect consumers against abusive payday lending
practices that have become a serious issue given the economic climate.
The state should do everything it can to ensure New Yorkers aren't
taken advantage of by unscrupulous actors.

PRIOR LEGISLATIVE HISTORY:;

2011: A.3288
2009: A.1484
2007: a.722
2005-06: A.850
2003-04: A.3480

FISCAL IMPLICATIONS:

None.

EFFECTIVE DATE:

This act shall take effect on the ninetieth day after it shall have
become a law.

view bill text
                    S T A T E   O F   N E W   Y O R K
________________________________________________________________________

                                  4036

                       2013-2014 Regular Sessions

                            I N  S E N A T E

                              March 5, 2013
                               ___________

Introduced  by  Sen.  SMITH  -- read twice and ordered printed, and when
  printed to be committed to the Committee on Banks

AN ACT to amend the banking law and  the  general  obligations  law,  in
  relation  to prohibiting foreign banking corporations from engaging in
  high-cost payday loans

  THE PEOPLE OF THE STATE OF NEW YORK, REPRESENTED IN SENATE AND  ASSEM-
BLY, DO ENACT AS FOLLOWS:

  Section 1. The banking law is amended by adding a new section 202-k to
read as follows:
  S  202-K.  PROHIBITION  OF PAYDAY LOANS.  1. NO FOREIGN BANKING CORPO-
RATION SHALL MAKE ANY PAYDAY LOAN, EITHER  DIRECTLY  OR  INDIRECTLY,  OR
MAKE  ANY  LOAN  TO  ANY OTHER LENDER FOR PURPOSES OF FINANCING A PAYDAY
LOAN OR REFINANCING OR EXTENDING ANY PAYDAY LOAN.
  2. FOR PURPOSES OF THIS SECTION "PAYDAY LOAN" MEANS ANY TRANSACTION IN
WHICH A SHORT-TERM CASH ADVANCE IS MADE TO A CONSUMER  IN  EXCHANGE  FOR
(I)  A  CONSUMER'S  PERSONAL  CHECK  OR SHARE DRAFT, IN THE AMOUNT OF AN
ADVANCE PLUS A FEE, WHERE PRESENTMENT OR NEGOTIATION OF  SUCH  CHECK  OR
SHARE  DRAFT  IS DEFERRED BY AGREEMENT OF THE PARTIES UNTIL A DESIGNATED
FUTURE DATE; OR (II) A CONSUMER'S AUTHORIZATION TO DEBIT THE  CONSUMER'S
TRANSACTION ACCOUNT, IN THE AMOUNT OF THE ADVANCE PLUS A FEE, WHERE SUCH
ACCOUNT WILL BE DEBITED ON OR AFTER A DESIGNATED FUTURE DATE.
  S  2.  The  general obligations law is amended by adding a new section
5-532 to read as follows:
  S 5-532. PROHIBITION ON PAYDAY LOANS.  1. A CREDITOR MAY  NOT  MAKE  A
PAYDAY  LOAN TO ANY PERSON IF THE CREDITOR KNOWS OR HAS REASONABLE CAUSE
TO BELIEVE THAT:
  A. THE PERSONAL CHECK OR SHARE DRAFT THE CREDITOR  RECEIVES  FROM  THE
PERSON,  IN  EXCHANGE  FOR  THE  LOAN, IS DRAWN ON AN INSURED DEPOSITORY
INSTITUTION OR INSURED CREDIT UNION; OR

 EXPLANATION--Matter in ITALICS (underscored) is new; matter in brackets
                      [ ] is old law to be omitted.
                                                           LBD00596-01-3

S. 4036                             2

  B. THE ACCOUNT THE CREDITOR RECEIVES PERMISSION  FROM  THE  PERSON  TO
DEBIT, IN EXCHANGE FOR THE LOAN, IS A TRANSACTION ACCOUNT OR SHARE DRAFT
ACCOUNT AT AN INSURED DEPOSITORY INSTITUTION OR AN INSURED CREDIT UNION.
  2. FOR PURPOSES OF THIS SECTION:
  A. "INSURED CREDIT UNION" SHALL MEAN ANY CREDIT UNION CHARTERED BY THE
FEDERAL  GOVERNMENT  OR  FEDERALLY  INSURED  CREDIT UNION CHARTERED BY A
STATE.
  B. "PAYDAY LOAN" SHALL MEAN ANY TRANSACTION IN WHICH A SHORT-TERM CASH
ADVANCE IS MADE TO A CONSUMER IN EXCHANGE FOR (I) A CONSUMER'S  PERSONAL
CHECK  OR  SHARE  DRAFT,  IN THE AMOUNT OF THE ADVANCE PLUS A FEE, WHERE
PRESENTMENT OR NEGOTIATION OF SUCH CHECK OR SHARE DRAFT IS  DEFERRED  BY
AGREEMENT  OF  THE  PARTIES  UNTIL  A  DESIGNATED FUTURE DATE; OR (II) A
CONSUMER'S AUTHORIZATION TO DEBIT THE CONSUMER'S  TRANSACTION  OR  SHARE
DRAFT  ACCOUNT,  IN  THE  AMOUNT  OF  THE ADVANCE PLUS A FEE, WHERE SUCH
ACCOUNT WILL BE DEBITED ON OR AFTER A DESIGNATED FUTURE DATE.
  S 3. This act shall take effect on the ninetieth day  after  it  shall
have become a law.

Comments

Open Legislation comments facilitate discussion of New York State legislation. All comments are subject to moderation. Comments deemed off-topic, commercial, campaign-related, self-promotional; or that contain profanity or hate speech; or that link to sites outside of the nysenate.gov domain are not permitted, and will not be published. Comment moderation is generally performed Monday through Friday.

By contributing or voting you agree to the Terms of Participation and verify you are over 13.