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memorandum in opposition

Memorandum in Opposition: New Yorkers Do Not Need Check Cashers as Lenders in New York

A.7047 (Heastie)/S.3841 (Farley)

A.7047 (Heastie)/S.3841 (Farley)

This bill would enact the “short-term financial services loan act.” The bill would authorize check cashers to become lenders and make short-term consumer loans.

Empire Justice Center strongly opposes A.7047/S.3841, referred to as the “short-term financial services loan act.”  We believe the bill would create an unlevel playing field by allowing check cashers to make loans that are currently prohibited from being made by mainstream, regulated banks and credit unions.  These prohibitions have protected New Yorkers from payday and other non mainstream lenders that prey on low income and struggling consumers by charging exceptionally high interest rates.  The abuse of low-income consumers by the financial services industry is well documented and well known.  At this point in time, we should be adding safeguards and protections, not opening a door which will lead to greater exploitation.

While this legislation is not specifically written as a traditional payday lending bill, the essence of the bill is exactly that.  We strongly believe that this bill is a first foot in the door for the non-mainstream financial services industry to start making payday-like loans to consumers in New York.  New York consumers are fortunate not to be experiencing the hardships that are well documented and experienced by consumers in other states as a result of payday lending.  Congress has effectively equated payday lending with predatory lending and banned payday loans being made to military personnel.  It makes no sense at all that at a point in time when policy makers, advocates and state agencies are pushing hard in other states to ban payday lending (such as in Washington and Illinois), that New York would sanction a similar product to be made within its borders.

Here in New York, we have a well-established financial services industry.  Some community credit unions and banks already offer small-dollar short term loan products, the same products that the check cashers want to be able to make through this legislation.  The mainstream lenders, however, make responsible short-term loans within our existing laws, laws put in place to protect New York consumers.  It is wholly unnecessary to license and allow check cashers to enter an industry which already exists and is well regulated.  The ability to lend money should not be extended to check cashers.

Again, we believe this bill  would create an unlevel playing field that would have a negative impact on  traditional, responsible lenders and check cashers.  The legislation would exclude check cashers from coverage under New York’s interest rate cap for small dollar consumer loans.  If passed, the bill would mean that check cashers could make small dollar loans at an interest rate above our state limit, while mainstream lenders adhere to our state limit.  It is now known the detrimental impact that a two-tiered system of regulations had on the mortgage lending industry and on consumers.  (In one respect, the responsible, well-regulated lenders were harmed by the practices of irresponsible and unregulated lenders, and in another respect, the actions of the irresponsible lenders lead to a great race to the bottom for the industry as a whole.)   There is no rational reason to allow check cashers to come in and make loans under a separate set of guidelines than exists for traditional lenders.  The potential for harm of a two-tiered system to consumers is great.

We strongly urge the legislature not to move forward with this legislation.  The bill would have real implications for New York’s lower-income consumers and could fundamentally alter consumer lending in our state.  Instead, we recommend an independent study and examination of the extent of the need for small dollar short-term loans, and whether that need is currently being met by our existing lending community.  If a real unmet need exists, the next step should be to work within our existing financial institutional system to create a responsible product that is not harmful to consumers.   Allowing check cashers to start lending under an entirely new and separate set of guidelines should not be the next step. 

There is no question that this legislation will hurt lower-income New Yorkers.  As written, the legislation would allow a rogue financial services industry to profit from the most financially vulnerable segment of our state. 

For these reasons, the Empire Justice Center strongly opposes this legislation and requests that instead, the NYS Legislature holds hearings and conducts meetings with consumers and advocates to determine the extent of the need and how the need can be met through our existing financial services industry.  Check cashers should not become lenders so easily.

See also memo in opposition by New Yorkers for Responsible Lending.

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