Extends the effectiveness of open end loans

BILL NUMBER:A8382

Title of bill

An act to amend chapter 223 of the laws of 1996, amend- ing the banking law relating to permissible fees in connection with open end loans, in relation to extending the effectiveness thereof

Purpose Or General Idea Of Bill: To continue, for another two years, the existing statutory authority of licensed lenders to charge annual fees on open-end personal loans.

Summary Of Specific 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, 2011), the authority of licensed lenders to charge annual fees on open-end personal loans.

Effects Of Present Law Which This Bill Would Alter: 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. Legislation was enacted in 2000 to extend this authority for another five years, and legislation was enacted in 2005 and 2007 to extend this authority for an additional two years. The provisions of 1996 law are currently scheduled to expire on June 30, 2009.

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 addi- tional costs are incurred in the administration of revolving loans, such as the preparation and mailing of monthly billing statements, the proc- essing of transactions and increased monitoring costs.

For these reasons, banking institutions have long had the ability to charge annual fees in open-end loan 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 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 flexibili- ty in pricing their loan products. Therefore, this bill would extend the provisions of the 1996 law for another two years.

Prior Legislative History: New Bill

Fiscal Implications For State And Local Governments: None

Effective Date: Immediately