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Farley Promises To Amend Check-Casher Loans
May 22nd, 2011
Senator Hugh Farley caused quite a commotion and evoked strong reactions from responsible lending advocates like the AARP and NEDAP, the Neighborhood Economic Development Advocacy Project, when he advanced a bill through the Senate Banking Committee which is designed to allow check cashers to offer short-term loans to their customers, most of whom reside in lower income suburbs.
Akin to PayDay loans
The AARP and NEDAP groups said this was akin to PayDay lending, in which people are given an advance on the money in their paycheck, typically for one or two weeks in exchange for a fee. The fee doesn’t seem like a lot, say $10 out of a $500 paycheck, for example, but it rises to a usurious percentage when converted to the annual interest rate. Currently, PayDay loans are illegal in New York.
Desperate
According to Sarah Ludwig, co-director of NEDAP, “If you listen to the check cashers, there are New Yorkers who desperately need these loans which are not available to them. However, they conveniently leave out the fact that the bill entails a carve-out of the state’s usury laws, and would enable them to make loans without even determining borrower’ ability to repay. The fact that many New Yorkers are struggling to make ends meet does not justify the legalization of exploitative lending practices. This bill is not in the best interests of the public.”
Farley’s bill
Under Farley’s bill, interest rates would be determined by the head of the new Department of Financial Services. As written, he “shall” consider interest rates for similar loans in other states and what might make the loans profitable. “This will lead to triple-digit annualized rates!” said Ludwig. Farley said the bill would be amended.
“That was put in by the people that want the bill to give the superintendent some direction,” he said. “They’re talking about payday loans. This is not the same thing.”
Legislation’s intent
Farley went on to defend the legislation’s intent as providing credit to people who otherwise could not get it. “In these areas, and particularly in New York City, there are no financial institutions, banks, or anything else in the poorer areas. Check cashers provide a haven like a financial oasis. This arrangement would allow people to get a small loan for three or six months,” he said.
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