Enacts the "short-term financial services loan act"

Summary Of Specific Provisions:

Section 1: Creates the Short-term Financial Services Loan Act.

Section 2: Amends Banking Law section 17(2) to authorize the Banking Department to assess check cashers that offer small loans under the provisions of this act a fee to finance the operation of the borrower data base established under this act to protect the interests of consum- ers.

Sections 3 and 4: Amends Banking Law section 18-a(4) and (5) regarding license fees for check cashers that offer small loans under this act.

Section 5: Amends Banking Law section 340 to create an exemption to the Licensed Lender Law to allow licensed check cashers to make financial service loans.

Section 6: Amends Banking Law section 373(1) to delete the prohibition on licensed check cashers engaging in the business of making loans and adds a new subdivision which provides for financial services loans to be made by licensed check cashers, subject to the regulatory supervision of the NYS Banking Department and the consumer protections provided in the bill.

Section 7: Adds new Banking Law sections 373-a through 373-g to author- ized licensed check cashers to offer small denomination loans to consum- ers under certain circumstances. The bill requires licensees to utilize a real-time database, which is accessible by the Superintendent of Banks and by other lenders, to track borrowing behavior and verify whether a financial services loan transaction is outstanding for a particular person. The loan amounts can be only between $300 and $2,000. There are strict limits placed on such licensees to only lend money to qualified borrowers based on income and ability to pay back such loans. The bill imposes very strict regulations on who may obtain such a loan and the fees that licensees may charge to secure such a loan. Further, it mini- mizes the types of fees and actions that a lender may take against a borrower for non-payment of such loans.

Justification: This bill addresses the unfulfilled need of New Yorkers for an affordable, small-dollar, short-term credit product, to be

provided by a strictly regulated lender. Currently, affordable small dollar, short-term cash advances are unavailable for many people in this State. The reasons for the absence of such products include the absence of traditional lenders willing to provide such credit for small loans. Further, the inability of certain persons with low or spotty credit ratings who need credit the most, but are unable to obtain smaller loans. Currently the only source of funds for such persons is high interest credit cards and overdraft protection products. Notwithstanding the absence of appropriate small-dollar, short-term credit products, there is a demonstrated need for such products from regulated sources at affordable rates.

Consumer demand and the incidence of high-cost borrowing in New York has been documented by consumer research studies. Accordingly, New Yorkers are satisfying their demand for small short term loans through high cost financial sources such as credit cards, overdraft protection, deferred/late payments, and unregulated payday loans. An estimated 3,000,000 New Yorkers incurred overdraft protection fees and an addi- tional 5,800,000 incurred late fees for paying bill or credit card balances late.

Currently, approximately 1 Million New Yorkers obtain an estimated total of 8 million payday loans (mainly through the Internet) each year. These loans have an aggregate estimated value of between $4 to $5 billion, from unlicensed out-of-state lenders. These lenders are charging New Yorkers exorbitant fees and interest rates to provide a cash advance until their next payday check is received. Further, such loans are being made with few or no consumer protections for the borrower. The regulated products created by this bill are not pay day loans (due every two weeks), but are longer term loans for at least between 90 and 180 days.

The extension of small dollar, short-term credit by out-of-state compa- nies at extremely high costs is draining New York's economy of capital, removing tax revenue from the State, and causing the loss of jobs to other states. Considering elevated fixed costs and risk, among other factors, the cost of providing this small dollar credit is high. This bill can help to satisfy the financial needs of its citizens in these times of great financial stress and do so in a way that enhances consum- er protections for some of our most vulnerable citizens.

New York check cashers are in the singular business of offering consumer financial services. Existing regulatory oversight, coupled with an extensive network of convenient locations, make the licensed check cash- ers well-suited to offer a viable small dollar credit alternative to New Yorkers. These small dollar loans are being authorized in New York subject to the supervision by the NYS Banking Department.

Prior Legislative History: New Bill

Fiscal Implications For State And Local Governments: None

Effective Date: 180 days after it shall have become law.