February 12, 2020 –
A new federal proposal would make it much more difficult for New York to control payday loans. These are short term, high interest loans for a small amount. If you go to a payday lender, they will confirm that you have income and get you money in no time. In return, you give them access to your bank account so they can get their money, plus interest, back on your next paycheck. People who don’t make a lot of money and people around military bases are particularly vulnerable.
The annual interest on these loans can be 390% or more, according to the Consumer Financial Protection Bureau.
Related story: The Payday Loan Problem
States generally limit interest rates to protect consumers from predatory lending. New York is notorious for being particularly strict, limiting rates to 25%. However, states do not control the interest rates of large national banks; they are regulated by the federal government, which does not limit their interest rates.
Predatory lenders are trying to take advantage of it. They work with national banks to get around state rules so that they can charge very high interest rates. Consumer watchdogs call these programs “rent-a-bank”.
“A high cost lender like Elevate [or Rise or OppLoans] find a bank that will send the money to the consumer.
“Then the bank sells the right to collect the interest to the high-cost lender who then continues to collect 160% interest that they could not charge directly in a state like New York,” said Lauren Saunders, an attorney at National Consumer Law. Center.
The bank charges high fees for being used by predatory lenders; predatory lenders bypass state rules and get their 160 percent interest.
Bank rental loans can come from payday lenders, but they are mostly long-term loans, typically $ 500 to $ 10,000 that can be repaid over a year or two, according to Saunders.
“Right now, New York is about the only state where there is no consumer bank leasing program yet because the state attorney general and state regulator have been very strong in enforcing their laws. “
However, New York Attorney General Letitia James is concerned that a new rule from the Federal Deposit Insurance Corporation (FDIC) and the Office of the Comptroller of the Currency (OCC) will make it much more difficult to restrict lenders. on salary and these “rents -bank”.
“This rule proposed by the FDIC and OCC would allow lenders who should be regulated at the state level and limited by state interest rate limits to charge any extremely high rates they can convince a dishonest bank to offer, ”Saunders said.
“It’s shocking to see the FDIC take the side of these predatory bank rental lenders.”
“The FDIC’s approval of a bank’s leasing programs will only ensure that the cycle of indebtedness continues for New Yorkers and Americans across the country,” James said in a press release. .
“As this proposed rule undermines New York’s efforts to prevent payday lenders from working with the big banks, our coalition is fighting back to protect this country’s most vulnerable consumers.”
James joins his counterparts in two dozen other states in opposing the rule change. It has been reported that FDIC members are divided over this rule change.
If the FDIC finalizes the rule, Saunders expects it to be challenged in court.