Posts Tagged ‘Emergency cash’

Fight Raging Over Payday Loans in the State Of New York

June 5th, 2011

Check-cashers cry “they are a service to communities”
It’s all happening in Albany over legislation that would permit non-banks to make high-cost short-term loans in New York, but at rates exceeding the state’s usury limit.
The bill, pending in the state Legislature, would allow licensed check-cashers to make small loans. Currently, they are barred from making loans.

Limited loans
The new loans would be limited to between $300 and $2,000, and would be for terms of at least 90 days but no more than six months. The bill includes other provisions which supporters say will protect consumers. However, consumer advocates, led by New Yorkers for Responsible Lending, denounce the proposed loans as tantamount to controversial “payday” loans that are common in many states but illegal in New York. They say passage of the bill would set a precedent and lead other businesses to say they should be allowed to make such loans.

Exempting
Consumer advocates are angry over a provision exempting the loans from the 25 percent usury cap on rates for small personal loans. “What they’re seeking is a carve-out of New York’s usury law,” said Sarah Ludwig, co-director of the Neighborhood Economic Development Advocacy Project, and part of NYRL, a coalition of 151 groups. But the check-cashers and their supporters, including the bill sponsor, reject the criticism.

Check cashers
Check cashers also say they are in the best position to help with small credit needs because they’re still in communities that banks have left, and they understand their customers. “We’re trying to do something that fills people’s needs and does it in a responsible and regulated way, and nobody else is,” said Edward P. D’Alessio, deputy general counsel for the trade group, Financial Service Centers of New York.

Battle
The battle marks the most significant effort in recent years to bring payday lending and its variations into a state that has long fought it. For several years the check-cashers have been trying to get such legislation passed, and a similar bill reached the Senate floor last year. “They’ve been salivating to get this through,” Ludwig said.

Short term loans
Because of the extremely short duration of the loan, the flat-rate fees for every $100 borrowed often equate to annual interest rates of several hundred percent. And since many of the borrowers are short on funds, they renew and increase the loans an average of seven times, driving up the fees and debt. As a result, the loans have been denounced for years by consumer advocates.

Loan supporters
The bill’s supporters say that consumers already get payday loans amounting to about 8 million a year, according to a study by Cypress Research commissioned by the check-cashers, so it would be better to regulate them to prevent abuse. And even opponents acknowledge a need for very small loans. Under the legislation, loans would be capped at 25 percent of the borrower’s gross monthly income. Payments would be made in installments every month or every two weeks, not in one balloon amount at the end, and the payments must equal no more than 10 percent of gross monthly income.

One at a time
Borrowers may not take out more than one loan at a time, and the industry would fund a database of such loans to ensure compliance. Unlike a payday loan, these loans could only be refinanced once, if the borrower has made three straight on-time payments. The bill includes the right of the borrower to cancel the loan for one day. No collateral would secure the loan, and the bill bans criminal prosecution to collect unpaid money. Finally, the bill directs the banking superintendent to set the maximum rate, factoring in the check-cashers’ operating costs and losses for the business, and ensuring a “reasonable” rate of return.

Reward for risk
“You’ve got to have some reward for your risk,” D’Alessio said. “Anybody who is going to go into an area and make small-dollar loans should be enticed to make at least a little profit. Otherwise, nobody’s going to do it.” The legislation is opposed by the city of New York, labor unions, AARP and the Navy-Marine Corps Relief Society. The bill has passed the Senate Banks Committee and is pending in the Finance Committee and the Assembly Banks Committee. The legislative session ends June 20. The governor has not weighed in.

Tags: AARP, Emergency cash, Interest rates, Payday loans
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