What's happening
This bill creates a five-year pilot program allowing licensed lenders in New York to offer regulated, small-dollar installment loans with enhanced consumer protections and reporting requirements.
Why it matters
Expands access to credit for underserved New Yorkers. By allowing loans as small as $300 and up to $5,000, this program targets consumers who may not qualify for traditional bank loans—potentially reducing reliance on predatory payday lenders and helping individuals build or repair their credit with regulated products.
Imposes strict consumer protection standards. The bill requires lenders to cap interest rates at 30%, prohibits refinancing of loans (to avoid debt traps), bans credit insurance add-ons and up-front fees beyond a tightly limited origination charge, and mandates clear, plain-language disclosures—helping to prevent common abuses in the small-dollar lending market.
Mandates robust oversight and transparency. Lenders and their referral partners are subject to regular examinations, reporting requirements, and disciplinary actions, including public reporting on loan performance, borrower demographics, and complaints received. The Department of Financial Services will issue public reports to help lawmakers and the public assess the program's impact.
Promotes responsible lending and financial education. Lenders must verify borrowers’ ability to repay (capping total monthly debt payments at 35% of gross income), report payment history to credit bureaus to help borrowers build credit, and offer (but not require) free credit education—aiming to promote long-term financial stability rather than short-term relief.
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Who cares
Licensed consumer lenders
Approved participants could offer unsecured loans of $300 to $5,000 at up to 30% annual simple interest plus permitted fees, subject to underwriting, licensing and reporting requirements.
New Yorkers seeking small installment loans
Borrowers would receive credit-bureau reporting, free credit education offers and a right to cancel by the next business day, with eligibility subject to a 35% debt-to-income limit.
Businesses serving as referral partners
Partners could earn capped compensation for helping process loans and receive payments, but could not negotiate loan terms or charge borrowers referral fees.
Department of Financial Services
The department would administer the five-year pilot, approve lenders, examine participants and publish reports on lending activity, borrower outcomes and violations.
Headline styles
Expand Small Loan Access
Plain English, a few words. Used as the page title.
Sponsors
No co-sponsors yet.
History
- Recommit, enacting clause stricken
- Referred to banks
Companion bill
The same bill in the other chamber. A bill becomes law when one version passes both houses and the governor signs it, so either number can carry it.
Expand Small Loan Access
In Assembly Committee · Banks · Sponsor Joseph Morelle
Full text
14 pagesUnderlined is new[Struck] is removedOfficial text on nysenate.gov ↗
STATE OF NEW YORK
5771
2017-2018 Regular Sessions
IN SENATE
April 28, 2017
Introduced by Sen. HAMILTON -- read twice and ordered printed, and when printed to be committed to the Committee on Banks
AN ACT to amend the banking law, in relation to enacting the "credit creation pilot program act of New York"; and providing for the repeal of such provisions upon expiration thereof
The People of the State of New York, represented in Senate and Assembly, do enact as follows:
Section 1. Short title. This act shall be known and may be cited as the "credit creation pilot program act of New York".
§ 2. The legislature finds and declares that consumer demand for responsible installment loans in principal amounts of at least three hundred dollars and no more than five thousand dollars exceeds the supply of these loans. The legislature has identified several improvements that could be made to the banking laws, which would allow more New Yorkers to access responsible installment loans of at least three hundred dollars and no more than five thousand dollars. The credit creation pilot program act of New York is intended to assist consumers in building their credit and has additional consumer protections for these loans which exceed current protections under existing law.
§ 3. The banking law is amended by adding a new article 8-B to read as follows:
ARTICLE 8-B
CREDIT CREATION PILOT PROGRAM ACT OF NEW YORK Section 339-a. Creation of pilot program and definitions.
339-b. Approval required; program application requirements;
fees.
339-c. Requirements for program loans.
339-d. Underwriting requirements; credit reporting; credit
education; prohibition on refinance; prohibition on
credit insurance; and additional consumer protections.
339-e. Disclosures, statements and receipts.
EXPLANATION--Matter in italics (underscored) is new; matter in brackets
[ ] is old law to be omitted.
LBD10403-01-7
S. 5771 2
339-f. Referral partners; permitted services; prohibited activ-
ities; compensation.
339-g. Examinations and grounds for disciplinary action.
339-h. Program reporting.
§ 339-a. Creation of pilot program and definitions. 1. The superintendent shall create and implement within the department, the credit creation pilot program act of New York.
2. For purposes of this article:
(a) "Consumer reporting agency" has the same meaning as in section 603(p) of the Fair Credit Reporting Act, 15 U.S.C. section 1681a(p).
(b) "Credit score" has the same meaning as in section 609(f)(2)(A) of the Fair Credit Reporting Act, 15 U.S.C. section 1681g(f)(2)(A).
(c) "Data furnisher" has the same meaning as the term "furnisher" in 12 C.F.R. section 1022.41(c).
(d) "Pilot program" or "program" means the credit creation pilot program act of New York.
(e) "Pilot program licensee" or "program licensee" means a person or entity that is licensed to make and collect program loans under this article and who is approved by the superintendent to participate in the program.
(f) "Pilot program master license" or "program master license" means a program master license issued by the superintendent under this article authorizing a program licensee to make and collect program loans.
(g) "Program branch office license" means the license granted to a program licensee with a program master license for additional licensed program locations, excluding a program licensee's or referral partner's principal place of business, at which program loans are originated, negotiated, funded, or serviced by a program licensee.
(h) "Program loan" means a consumer installment loan with a principal amount of at least three hundred dollars and no more than five thousand dollars.
(i) "Referral partner" means an entity that, at the referral partner's physical location for business or through other means, performs one or more of the permitted services specified in section three hundred thirty-nine-f of this article on behalf of a program licensee. A referral partner shall not mean a loan broker as defined in section 5-531 of the general obligations law.
(j) "Superintendent" means the superintendent of financial services.
§ 339-b. Approval required; program application requirements; fees. 1. A program licensee may not offer or make a program loan, or impose any charges or fees pursuant to this article, without prior approval from the superintendent to participate in the program.
2. In order to participate in the program, a person or entity must:
(a) Be licensed as a lender pursuant to article nine of this chapter;
(b) Not be the subject of any insolvency proceedings;
(c) Be in good standing with the superintendent and not be subject to any outstanding enforcement or other disciplinary actions taken against it by any of New York's financial regulators or by a financial regulator of another state, the District of Columbia or any agency of the United States;
(d) Pay an application fee of three thousand dollars to the superintendent at the time of making the application;
(e) File with the superintendent an application in a form and manner prescribed by the superintendent which contains the following information with respect to the program applicant and such other information as the superintendent may require by regulation:
S. 5771 3
(i) The legal business name and any other name the applicant operates under other than the legal business name;
(ii) The address of the principal place of business;
(iii) The telephone number and e-mail address;
(iv) The address of any program branch office;
(v) The name and address of the applicant and if the applicant is a partnership or limited liability company, the names and addresses of the members, or if the applicant is a corporation, the names and addresses of the shareholders owning ten percent or more of the shares of such corporation;
(vi) The contact person's name, title, address, telephone number, and e-mail address;
(vii) The license number, if licensed under article nine of this chapter;
(viii) A statement as to whether the applicant intends to use the services of one or more referral partners under section three hundred thirty-nine-f of this article;
(ix) A statement that the applicant has been accepted as a data furnisher by a consumer reporting agency and will report to a consumer reporting agency the payment performance of each borrower on all loans made under the program; and
(x) The signature and certification of an authorized person of the applicant.
3. A program licensee who desires to participate in the program but who is not licensed to make loans pursuant to article nine of this chapter must submit concurrently the following two applications to the superintendent, in a form and manner specified in this section:
(a) An application and a fee for a master license pursuant to article nine of this chapter; and
(b) An application and a fee for admission to the program in accordance with paragraphs (d) and (e) of subdivision two of this section.
4. Except as otherwise provided in this article, a program licensee is subject to all the laws and rules governing consumer loans under article nine of this chapter.
5. All program licensees shall be assessed an annual nonrefundable license fee of one thousand dollars.
6. Only one pilot program master license is required for a person or entity to make program loans under this article, regardless of whether the program licensee offers program loans to prospective borrowers at its own physical business locations, through referral partners, or via an electronic access point through which a prospective borrower may directly access the website of the program licensee.
7. Each branch office of a program licensee must be licensed under this section.
8. This superintendent shall issue a program branch office license to a program licensee after the superintendent determines that the program licensee has submitted a completed application for a program branch office license in a form prescribed by the superintendent and payment of an initial nonrefundable program branch office license fee of five hundred dollars for each branch office as prescribed by the superintendent. Application fees may not be prorated for partial years of licensure. The program branch office license shall be issued in the name of the program licensee that maintains the branch office. The application for a program branch office license shall contain the following information with respect to the applicant:
S. 5771 4
(a) The legal business name and any other name the applicant operates under other than the legal business name;
(b) The address of the principal place of business;
(c) The telephone number and e-mail address;
(d) The address of each program branch office;
(e) The contact person's name, title, address, telephone number, and e-mail address;
(f) The program master license number, if licensed under this article; and
(g) The signature and certification of an authorized person of the applicant.
§ 339-c. Requirements for program loans. 1. A program licensee shall comply with each of the following requirements in making program loans:
(a) A program loan shall be unsecured;
(b) A program loan shall have a minimum principal amount upon origination of three hundred dollars and a maximum principal amount upon origination of five thousand dollars excluding the amount of the origination fee permitted under subdivision three of this section;
(c) A program loan shall have a term of not less than two hundred forty days;
(d) A program loan must be repayable by the borrower in substantially equal weekly, biweekly, semimonthly, or monthly installments; and
(e) A program loan must include a borrower's right to rescind the program loan by notifying the program licensee of the borrower's intent to rescind the program loan and return the principal advanced by the end of the business day after the day the program loan is consummated.
2. As an alternative to the charges authorized by section 5-501 of the general obligations law or section fourteen-a of this chapter, a program licensee may contract for and receive charges for a program loan made pursuant to this section at an annual simple interest rate not to exceed thirty percent. The interest rate calculated as of the date of loan origination shall be fixed for the life of the loan and shall accrue on a simple-interest basis, through the application of a daily periodic rate to the actual unpaid principal balance each day.
3. Notwithstanding section 5-501 of the general obligations law or section fourteen-a of this chapter, a program licensee may contract for and receive a nonrefundable origination fee from the borrower, provided that the borrower has not rescinded the program loan pursuant to paragraph (e) of subdivision one of this section. The origination fee shall be fully earned immediately upon making the program loan, in an amount not to exceed five percent of the principal amount, exclusive of the origination fee, or seventy-five dollars, whichever is less, on the program loan made to that borrower. An origination fee charged by a program licensee shall be subject to all of the following:
(i) Only one origination fee may be contracted for or received from a borrower until the program loan has been repaid in full;
(ii) A program licensee shall not charge the same borrower an origination fee more than twice in any twelve-month period; and
(iii) The program licensee may either deduct the origination fee from the principal amount of the program loan disbursed to the borrower or capitalize the origination fee into the principal balance of the program loan.
4. Notwithstanding section three hundred fifty-one of this chapter, a program licensee may:
S. 5771 5
(a) Require payment from a borrower of no more than twenty-five dollars for insufficient funds fees incurred by that program licensee due to actions of the borrower; and
(b) Contract for and receive a delinquency fee of no more than fourteen dollars for each payment in default for at least seven days if the charge is agreed upon in writing between the parties before imposing the charge. A delinquency fee imposed by a program licensee is subject to all of the following:
(i) No more than one delinquency fee may be imposed per delinquent payment;
(ii) No more than two delinquency fees may be imposed during any period of thirty consecutive days; and
(iii) No delinquency fee may be imposed on a borrower who is one hundred eighty days or more past due if that fee would result in the sum of the borrower's remaining unpaid principal balance, accrued interest, and delinquency fees exceeding one hundred eighty percent of the original principal amount of the borrower's loan.
§ 339-d. Underwriting requirements; credit reporting; credit education; prohibition on refinance; prohibition on credit insurance; and additional consumer protections. 1. The following shall apply to a program loan made by a program licensee pursuant to this article:
(a) The program licensee shall underwrite each program loan to determine a borrower's ability and willingness to repay the program loan pursuant to the program loan terms, and shall not make a program loan if it determines that the borrower's total monthly debt service payments, at the time of origination, including the program loan for which the borrower is being considered and all outstanding forms of credit that can be independently verified by the program licensee, exceed thirtyfive percent of the borrower's gross monthly income.
Reflowed for reading: line numbers and page breaks removed. Cite the official text.
Sponsor's memo
Title of bill
An act to amend the banking law, in relation to enacting the "credit creation pilot program act of New York"; and providing for the repeal of such provisions upon expiration thereof
Purpose of the bill
To help empower low-to-moderate income New Yorkers with the opportunity to build and establish credit through responsibly structured small loans of $300 to $5,000. Low credit scores prevent many hard-working New Yorkers from securing bank loans for small business creation, accessing affordable housing programs to curb gentrification, and being approved for mortgages to realize dreams of home ownership. Solving poverty is about jobs, wages, and addressing the wealth gap. This bill provides access to capital that addresses the wealth gap by putting borrowers on a path to build and improve their credit scores. The act includes strong consumer protections which exceed protections under existing law, including stringent "ability-to-repay" underwriting standards that ensure each borrower's capacity to repay a loan is evaluated, mandatory credit reporting, financial literacy, and a prohibition on refinance to avoid costly debt traps. The Credit Creation Act of New York is a 5-year pilot program and not a permanent change in New York law. The pilot program is modeled after a successful program in California that was passed unanimously in 2010 and provides for a slightly higher interest rate than is permitted under current law in order to increase the availability of small loans not offered by banks. The pilot program also requires lenders to report data on borrower demand, performance and success to enable the Legislature to further study the need and effectiveness of the program.
Summary of specific provisions
Section 1 of the bill provides that this act shall be known as the"Credit Creation Act of New York".
Read the full memo (1,392 words)
Section 2 of the bill provides the legislative findings and intent.
Section 3 of the bill amends the banking law by creating a new Article 8-B as follows:
Section 339-a provides for the creation of the pilot program and definitions.
Section 339-b establishes that no entity may provide a program loan or impose any charges or fees without prior approval of the superintendent. It further provides that no entity may participate in the program unless the entity (a) is a licensed lender under Article 9; (b) is not the subject of any insolvency proceedings; (c) is in good standing with the superintendent; (d) pays the required application fee; and (e) files with the superintendent an application meeting the statutory requirements of the act. Provides for payment of an annual license fee.
Section 339-c establishes the following requirements for program loans: The loan shall be unsecured; program loan principal amounts shall be between a minimum of $30o and a maximum of $5,000; no program loan shall have a term of less than eight months; the program loan shall be repayable by the borrower in substantially equal weekly, biweekly, semimonthly, or monthly installments; a program loan must include a borrower's right to rescind the loan the day after the program loan is consummated.
It further provides that the program licensee may contract for and receive charges for program loans as an annual simple interest rate not to exceed thirty percent with no prepayment penalty. The interest rate calculated at loan origination shall be fixed for the life of the loan.
It also provides that the program licensee may charge a non-refundable origination fee of five percent of the loan amount not to exceed seventy-five dollars. Sets forth strict statutory limits on fees a program licensee may charge a loan borrower.
Section 339-d provides requirements for consumer protections, including guidelines for determining each applicant's ability to repay based on verified income and a maximum debt-to-income ratio and reporting payment performance to one major credit bureau. Provides the requirement that the program licensee must offer to the potential borrower a credit education program or seminar which has been approved by the superintendent. Also prohibits the program licensee from refinancing a program loan and from offering, selling or requiring any form of "credit insurance".
Section 339-e provides the statutory guidelines for disclosure, statements and receipts.
Section 339-f provides the guidelines for a program licensee to engage a referral partner and sets forth the obligations and prohibited activities of a referral partner.
Section 339-g provides that the superintendent shall examine a program licensee once every twenty-four months and sets forth the disciplinary actions which may be taken against a program licensee or referral partner for violations of the act.
Section 339-h sets forth the mandatory reporting requirements of a program licensee to the superintendent. Further requires the superintendent to post on its website a report on the use of the program on or before January 1, 2021 and again on or before January 1, 2023. The section also provides the information that must be contained in the superintendent's report.
Section 4 provides the effective date and sunset provision of the act.
Justification
Without a good credit rating, it is impossible to start a business or buy a home. Even routine events, like renting an apartment or signing up for phone service, can be difficult. According to a recent Federal Reserve Study, 47% of all Americans do not have the savings to cover an emergency expense of $400. In New York, 47% of consumers have subprime credit and, according to the Consumer Financial Protection Bureau, another 19% are "credit invisible" (i.e., they have no credit file or their file is too thin to generate a credit score).
Credit is also a crucial cushion for dealing with unexpected expenses, particularly for the 28% of New Yorkers that don't have a savings account and the nearly 45% of New Yorkers that don't have enough liquid savings to cover basic expenses for three months.
The only way to build credit is to get credit. Yet, as of 2014, there were only 19 licensed lenders in New York and that number has remained flat since 2001. Most lenders simply do not believe they can make a profit under the current law. Therefore, a new solution is needed to encourage innovation in creating a robust market for responsible, credit building small loans in New York.
The Credit Creation Act of New York would create a pilot program with a 5-year automatic sunset provision with annual reporting by participants to let the Legislature assess the pilot program's effectiveness before making any permanent change. This reporting requirement would also shed light on the use and need for this product and could be used to improve financial services generally in our state. The Act would not change the rules for existing licensed lenders, banks, credit unions, or other lenders. It would give New Yorkers access to affordable loans and a path toward a stronger financial future.
The Credit Creation Pilot Program of New York is based upon a similar pilot program enacted in California in 2010 which the California Legislature unanimously passed. The California Department of Business Oversight ("DBO") supervises California's pilot program and periodically reports on the results of the pilot program. Its most recent report, issued in June 2015, covers the period from 2011-2014 and includes responses to a random survey of pilot program borrowers conducted by the DBO in 2014. This report offers strong evidence of the pilot program's success, including:
*486,331 loans were made from 2011 to 2014 out of 1,043,181 applications; *45% of borrowers in 2014 used the loans to build or repair credit; *77% of borrowers said the length of the loan was long enough to let them make loan payments without creating substantial hardship; *73% said the loan was sufficient to meet their needs; *67% of borrowers believed the cost of their loan was fair; and *61% of multiple-loan borrowers saw an improvement in their credit score by an average, in 2014, of 355 points.
Legislative history
A.10321 was introduced in 2016.
Fiscal implications
To be determined.
Effective date
This act shall take effect on the one hundred and eightieth day after it shall have become a law and shall expire and be deemed repealed five years after such date; provided, however, that effective immediately, the addition, amendment and/or repeal of any rule or regulation necessary for the implementation of this act on its effective date are authorized to be made or completed on or before such effective date.
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