New York "Enlists" Banks in Fight Against Payday Lenders

A six-page letter from New York’s Superintendent of Financial Services, Benjamin M. Lawsky, with the blessing of Governor Andrew M. Cuomo, reminds the state’s payday lenders that nope: you’re still gross. And illegal. And shouldn’t be operating in the first place. And get off the Internet.

The letter is addressed to 117 banks — from Bank of America Corp to Yonkers Postal Employees Credit Union.

Payday lenders in the Excelsior State can’t have brick-and-mortar shops. However, as the folks at one payday loan website remind the financially desperate: “New York does not offer payday loans, though there is no law against obtaining them. There are other ways to get hold of the money you need without breaking the law, or even breaking a sweat.”

Except maybe there’s now a little bit of sweating.

First, while “there is no law against obtaining” payday loans, New York is pretty clear about how those loans work: “Usurious payday loans are illegal in New York,” Lawsky reminds the listed banks, “and such loans are void and unenforceable. Under General Obligations Law § 5-501 and Banking Law § 14-a, loans or forbearances under $250,000, made by non-bank lenders, with an interest rate exceeding 16 percent per annum, constitute civil usury and are illegal. Further, under New York Penal Law §§ 190.40-42, loans made in New York with an interest rate exceeding 25 percent per annum constitute criminal usury.”

Next, comes the Internet part. “The Department has uncovered dozens of out-of-state lenders who have used the Internet to solicit and provide illegal payday loans to consumers in New York. Typically, these lenders charge fees that, when annualized, result in interest rates far in excess of the legal limit.”

Seeing as how New York has been breaking up with payday lenders for what seems like forever, New York decided that telling the 35 identified payday lenders using the Internet to scam/break the usury law wasn’t enough. (Also: that list of 35 payday lenders is included in the letter. See if your favorite payday lender made the list! Let us know!) Upping the ante, New York has also identified the banks that have — either wittingly or unwittingly (because we’re being generous and because we’re not stupid) been the automated clearing houses (ACH) for these transactions.

“The current ACH network appears to allow illegal loans to flow through New York without sufficient mechanisms to prevent or block these debits or credits as they occur,” according to Lawsky’s letter. “Access to the ACH system is the foot in the door that online payday lenders need to prey on vulnerable New Yorkers. And banks have proven to be – even if unintentionally – an essential cog in the vicious machinery that these purveyors of predatory loans use to do an end-run around New York law.”

Lawsky closes his letter: “Through a cooperative effort with the banking industry, we can work together to stamp out these pernicious, illegal payday loans in New York. To further that cooperative undertaking, we request the opportunity to meet with you and your designees with knowledge of the ACH network and NACHA rules and processes.”