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.
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.
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
This act shall take effect on the ninetieth day after it shall have become a law.
STATE OF NEW YORK ________________________________________________________________________ 4036 2013-2014 Regular Sessions IN SENATE 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; OREXPLANATION--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.