BILL NUMBER: S5774

SPONSOR: COMRIE
 
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," "post-
dated 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: Forò 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: There-
fore, 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 loophole and provide consumers with
affordable interest rates on loans.

 
JUSTIFICATION:

This bill would protect consumers against abusive payday lending prac-
tices 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:

2015-16: S.4458/A.4836: Referred to Banks.

2017-18: Senate Print 3699.

 
FISCAL IMPLICATIONS:

None to the State.

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