New York Continues Crack Down on Payday Lending

April 30, 2014 at 7:38 am Leave a comment

New York State continued its crack down on payday lending yesterday with the announcement, reported in this article in the Times, that it has reached an agreement with Visa and MasterCard under which the networks will apparently report as suspicious transactions those in which debit cards are used to facilitate payday loan transactions.

New York effectively bans payday loans by making it illegal to charge interest in excess of 25% on loans. However, the Internet has made this cap easy to evade by permitting out of state lenders, including some based on Indian Reservations, to offer loans to New York residents online. New York has aggressively attempted to close this loophole by not only issuing cease and desist orders against payday lenders (it issued 20 more such orders yesterday in conjunction with the VISA/MasterCard announcement), but also trying to limit the authority of banks and credit unions to honor request for payments from payday lenders. Originally it did this by pressuring NACHA to change its regulations mandating that institutions in the ACH network honor all payment requests. As a result, according to this article, more payday lenders are requiring that borrowers agree to paying with debit cards. Yesterday’s announcement is designed to allow New York State to identify and presumably try to prevent these payments.

DFS Superintendent Benjamin Lawsky sounds very much like the former federal prosecutor he is when he explains “I don’t know that there are many routes or avenues into the banking system where you can pull the money out of New Yorkers’ accounts. At a certain point, at least our hope is that they are going to run out of avenues.”

I’m no fan of payday lending, but I’m still not convinced that the State’s approach will ultimately be effective at keeping these products out of the hands of New Yorkers. Plus, I don’t think the precedent of allowing individual states to pick and choose what transactions should and should not be honored is a viable solution in an age when commerce is conducted on a global scale at the touch of a button. I’ve said it before and I’ll say it again, these are issues that have to be addressed by the CFPB with regulations imposed on all lenders throughout the country and federal judges that determine the all-important issue of where the government’s jurisdiction begins and ends to regulate banking activity, particularly when it takes place on Indian Reservations.

Entry filed under: General, New York State. Tags: , , , .

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Authored By:

Henry Meier, Esq., General Counsel, New York Credit Union Association.

The views Henry expresses are Henry’s alone and do not necessarily reflect the views of the Association.

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