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