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.