Regulates the provision of refund anticipation loans by persons and entities other than banking institutions

Summary of provisions

Section 1. Amends the Banking Law by adding a new section 46, "Refund anticipation loans." Defines 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".

Requires disclosures at the time of the RAL application, for: 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.

Provides that no RAL shall be made at any location other than a location in which the principal business is tax preparation. Requires all disclosure documents to 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. Establishes the maximum interest rate on RALs at 60% per annum for the first 21 days of the loan period and 20% per annum for any time period thereafter.

Prohibits facilitators from engaging in any of the following activities: (i) requiring a client to enter into a loan arrangement in order to complete a tax return; (ii) misrepresenting a material factor or condition of a refund anticipation loan; (iii) failing to process the application for a refund anticipation loan promptly after the client applies for the loan; and (iv) engaging in any transaction, practice, or course of business that operates a fraud upon any person in connection with a refund anticipation loan.

Establishes a civil penalty of not more than $500 per violation, to be assessed by the Superintendent of Banks as provided in Banking Law section 44. Provides that any facilitator who violates section 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.

Authorizes the Superintendent to promulgate regulations necessary to carry out the purposes of section 46.

Section 2. Clarifies that it is not intended to impair or limit the validity of additional local laws or regulations, not inconsistent with the provisions of section 46, applicable to the making of RALs.

Section 3. Severability

Section 4. Effective Date

Existing law

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 facilitate 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. Certain fraudulent practices associated with RAL facilitators are also proscribed. These practices have already been outlawed in the State of California.

Prior legislative history

2012: S.556 - Referred to Banks/A.5266 - Referred to Banks 2011: S.556 - Defeated in Banks/A.5266 - Referred to Banks 2012: S.5584 - Referred to Banks/A.10331 - Referred to Banks 2009: S.5584 - Referred to Banks/A.1663 - Enacting Clause Stricken

Fiscal implications for state and local governments

None.

Effective date

The first day of November 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.