Extends the effectiveness of open end loans.
TITLE OF BILL: An act to amend chapter 223 of the laws of 1996, amending the banking law relating to permissible fees in connection with open end loans, in relation to extending the effectiveness thereof
PURPOSE: To continue, for another two years, the existing statutory authority of licensed lenders to charge annual fees on open-end personal loans.
SUMMARY OF PROVISIONS: This bill amends the effective date of Chapter 223 of the Laws of 1996 to extend, for an additional two years (to June 30, 2013), the authority of licensed lenders to charge annual fees on open-end personal loans.
EXISTING LAW: Since 1996, Section 351 of the Banking Law has authorized licensed lenders to charge annual fees on open-end loans.
JUSTIFICATION: In 1996, legislation was enacted to authorize licensed lenders to charge annual fees on open-end loans. The law further provided that any such fee may not exceed the lesser of 1% of the loan amount or $50. This 1996 law contained a sunset date of June 30, 2000. Since that time, several laws have been passed to continue the provisions of the 1996 law. The provisions of the 1996 law are currently scheduled to expire on June 30, 2013.
The 1996 law recognized that annual fees are a commonly used feature in the pricing of open-end loan products, such as credit cards, home equity loans and personal loans. This type of fee reflects the fact that additional costs are incurred in the administration of revolving loans, such as the preparation and mailing of monthly billing statements, the processing of transactions, and increased monitoring costs.
Annual fees provide financial institutions with greater flexibility in pricing their loan products. Without this type of fee, lenders would have to rely solely on the interest rate to cover all of their costs. This would have the effect of elevating the interest rate. For example, many accounts, especially passive or low-balance accounts, may not generate sufficient interest income to offset the expenses incurred. To help recover such costs, a lender can either charge an annual fee to each customer, or they can increase the interest rate for all customers. The problem with the latter approach is that the impact of such rate increases falls disproportionately on persons who carry a high balance. In contrast, the ability to charge an annual fee enables lenders to better apportion their costs between account holders to reflect the actual costs incurred.
For these reasons, banking institutions have long had the ability to charge annual fees on open-end loans products. Licensed lenders have also had the ability to charge annual fees on certain open-end
products, such as credit cards and home equity loans. However, prior to 1996, they did not have the authority to charge annual fees on open-end personal loans. Chapter 223 of 1996 gave licensed lenders the same pricing flexibility as banking institutions in regard to charging annual fees on open-end personal loans. Licensed lenders should continue to have this flexibility in pricing their loan products. Therefore, this bill would extend the provisions of the 1996 law for another two years.
LEGISLATIVE HISTORY: New bill.
FISCAL IMPLICATIONS: None.
LOCAL FISCAL IMPLICATIONS: None.
EFFECTIVE DATE: Immediately.
STATE OF NEW YORK ________________________________________________________________________ 5531 2011-2012 Regular Sessions IN SENATE May 31, 2011 ___________Introduced by Sen. GRIFFO -- read twice and ordered printed, and when printed to be committed to the Committee on Banks AN ACT to amend chapter 223 of the laws of 1996, amending the banking law relating to permissible fees in connection with open end loans, in relation to extending the effectiveness thereof THE PEOPLE OF THE STATE OF NEW YORK, REPRESENTED IN SENATE AND ASSEM- BLY, DO ENACT AS FOLLOWS: Section 1. Section 3 of chapter 223 of the laws of 1996, amending the banking law relating to permissible fees in connection with open end loans, as amended by chapter 166 of the laws of 2009, is amended to read as follows: S 3. This act shall take effect immediately, and remain in full force and effect until June 30,
2013, when, upon such date, the amend- ments made by this act shall expire and be deemed repealed, and the provisions of law amended by this act shall revert to their text and be read as they were immediately prior to the effective date of this act. S 2. This act shall take effect immediately.EXPLANATION--Matter in ITALICS (underscored) is new; matter in brackets [ ] is old law to be omitted. LBD10121-01-1