New York’s Department Of Financial Services Teams With Visa To Tighten The Noose On Online Lending

New York’s Department Of Financial Services Teams With Visa To Tighten The Noose On Online Lending

Native American Tribes and Offshore Lenders Question Legality in Court

Criminal and civil laws in New York, as well as in 14 other states and the District of Columbia, prohibit payday lending. Under New York law, it is civil usury for non-bank lenders like payday lenders to make loans under $250,000 with an interest rate exceeding 16% per annum. Also, it is criminal usury to make a loan in New York with an interest rate exceeding 25% per annum. Banking Law prohibits unlicensed non-bank lenders from making consumer loans of $25,000 or less with an interest rate greater than 16% percent per annum. Usurious loans made to New York residents by non­-bank lenders are void and unenforceable, so debt collection on payday loans violates provisions of the Fair Debt Collection Practices Act.

Such laws prove that New York is serious about preventing certain lenders from lending money to consumers who live in the state. Yet, some lenders chose to avoid state laws by making loans available online to New York residents. ACH authorizations allowed borrowers to repay the debt through automatic withdrawals from their banking accounts.

ACH authorizations came under scrutiny after reports of lender abuse (attempting an ACH debit day after day, racking up bank fees, hoping at some point that sufficient funds will exist to cover it). Sweeping laws were passed requiring lenders to follow specific protocol when accepting ACH repayments.

Enter debit card repayments

The New York State Department of Financial Services (DFS) investigated online lenders processing loan repayments through debit cards after ACH authorizations rules became stricter. Since online lending is illegal in New York, the state is working with debit card companies like Visa, Inc. to stop borrowers from repaying loans using their debit cards.

Since debit and ACH networks are independent of each other and regulated by a different set of rules, DFS is acting quickly to prevent online payday lenders from accepting debit card payments in lieu of ACH authorizations.

Visa, Inc. isn’t DFS’s first partner. The state has also warned lead providers not to give lenders leads from New York residents. They’ve advised banks not to cooperate with online lenders. Working with debit card companies to stop running loan payments through debit cards is tightening the noose.

Do the rules apply for lenders outside of New York?

Native American tribes and offshore lenders don’t think so and they’re fighting the battle in court. Until a decision is made, online lending remains illegal in New York.

Meanwhile, back at the ranch…

Centrinex is playing it safe. We are not processing loans in the state of New York for any of our clients. Period.

When a customer applies for a loan, Centrinex ensures authorizations are in place and that applicants fully understand ACH authorizations. Doing so protects our call center clients from severe financial and legal consequences imposed if proof of the signed authorization cannot be produced.