Senate Bill S4458

                                BILL NUMBER:S4458

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:  To prohibit foreign banking corporations from issuing payday
loans.

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

EXISTING  LAW:    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.

LEGISLATIVE HISTORY:  S.4036 OF 2013-14

FISCAL IMPLICATIONS:  None.

EFFECTIVE DATE:   This bill shall take effect  on  the  ninetieth  day
after it shall have become a law.