Relates to refund anticipation loans

Summary of provisions

Bill § 1 adds a new §46 to the Banking Law entitled "Refund anticipation loans." The section includes definitions of the following terms: "borrower", "facilitator" (which means a person who makes or otherwise acts deals with the public to arrange a refund anticipation loan, but does not include banking institutions, licensed lenders or intermediaries), "refund anticipation loan", "refund anticipation loan fee", and "annual percentage rate".

At the time of an RAL application, §46 requires disclosures of:

* the estimated fee for preparing and electronically filing an income tax return;

* the RAL fee schedule;

* the annual percentage rate (APR) for the loan;

* the estimated total cost to the borrower of the RAL;

* the estimated number of days within which the loan proceeds will be paid to the borrower if the loan is approved;

* the borrower's responsibility for repayment of the loan and related fees in the event the income tax refund is not paid or not paid in full; and

* the availability of electronic tax return filing and the average time within which the borrower can expect to receive a refund with electronic filing if the borrower does not obtain an RAL.

Under §46, no RAL shall be made at any location other than a location in which the principal business is tax preparation. All disclosure documents shall be available in English, Spanish and in any other language spoken by more than 5% of the population in the vicinity of the facilitator's location. The provisions of the Banking Law and the General Obligations Law on interest rates are made inapplicable to RALs.

Instead, the maximum interest rate on RALs is set at 60% per annum for the first 21 days of the loan period and 20% per annum for any time period thereafter.

Violators are subject to a civil penalty of not more than $500 per violation, to be assessed by the Superintendent of Banks as provided in Banking Law §44. In addition, any facilitator who violates §46 can be held liable to any aggrieved borrower for three times the amount of the refund anticipation loan fee, plus reasonable attorney's fees, in a civil action brought by the aggrieved borrower or by the Attorney General on behalf of the aggrieved borrower. The Superintendent may prescribe regulations to carry out the purposes of §46.

The bill clarifies that it is not intended to impair or limit the validity of additional local laws or regulations, not inconsistent with the provisions of §46, applicable to the making of RALs. The provisions of §46 are also meant to be severable.

Effects of present law which this bill would alter

No current statutory provisions address the marketing, disclosure and offering of RAL products. Some local governments, such as New York City, have enacted local laws addressing disclosure requirements - this bill would allow local regulation of RALs provided it is not inconsistent with the bill's provisions.

Justification

In recent years there has been a substantial increase in the marketing of so-called "rapid refund" loans and similar products that promise instant access to the anticipated proceeds of a tax refund. These heavily advertised "refund anticipation loans" are actually high-cost short term loans, similar to payday loans. Recent reports provide evidence that these products are being targeted towards lower-income taxpayers, and especially to those who qualify for an Earned Income Tax Credit. These are people who can least afford to pay the exorbitant fees charged for RALs.

This bill will outlaw the use of predatory practices by those who facil- itate the making of RALs in New York by requiring disclosure of the true costs of the loan and by placing reasonable limits on the amount of fees that can be charged for such facilitated loans. This approach is modeled on legislation that has already been enacted by the State of Connecticut. RAL fees would be capped at 60% over the first 21 days of the loan and 20% thereafter. This would allow facilitators to recover their reasonable costs and operate profitably, but would be far less than the unconscionable 175%-700% APRs that New Yorkers are being charged today.

Prior legislative history

2009-10: S.4222

Fiscal implications for state and local governments

None.

Effective date

The first day of October after becoming law -- the Superintendent of Banks is authorized to promulgate any rules and regulations and take any other actions necessary for implementation in advance of such date.