- See more at: http://blogtimenow.com/blogging/automatically-redirect-blogger-blog-another-blog-website/#sthash.Q6qPkwFC.dpuf The Fight for Consumer Protections Comes to a Check Casher Near You (Updated) | Bronx News Networkbronx

Thursday, May 19, 2011

The Fight for Consumer Protections Comes to a Check Casher Near You (Updated)

(Update: Please note the corrections on the actual vote below.)
Opinion by Gregory Lobo Jost
I have to admit it is downright depressing that Republicans in Congress are doing whatever they can to block the newly formed Consumer Financial Protection Bureau (CFPB) from fully getting off the ground.  The bureau came about as a response to the failure of the various protection agencies to do their job on subprime and predatory products in the decade leading up the collapse.  Many of these agencies had arguably been bought off by the industries they were supposed to protect us from.  These same industries are now working the politicians in Washington to keep the CFPB from having any teeth.

What may actually be even more depressing is that New York State is now considering a bill that will relax some of our own strong consumer protections – mainly the state’s longstanding civil and criminal usury laws, which cap interest rates on small loans at 25%.  The Senate Committee on Banks voted yesterday in favor of a bill that would exempt check cashers from this usury cap and allow them to make triple-digit interest rate short term loans.

New Yorkers for Responsible Lending, a statewide coalition of 151 groups (including University Neighborhood Housing Program where I work) called on the committee to withdraw this piece of legislation (S.3841 / A.7047) known as the "short-term financial services loan act", as it would likely open the door to predatory payday lending, which thankfully our state has long prohibited. Despite this strong public opposition from NYRL groups and others around the state, the Committee approved the bill yesterday morning, sending it to the Finance Committee for review.

(Updated/Corrected:) Both Bronx Senators Ruben Diaz, Sr. and Gustavo Rivera are on this committee, but according to footage of the meeting on YouTube (skip ahead to minute 30 for this bill) were not present for the actual vote.  They both submitted their votes, however, with Diaz voting in favor and Rivera against. Senator Rivera was in another meeting with the Department of Corrections (he is also on the Crime Committee) about the potential closing of downstate prisons, and his staff has made it clear that he is strongly opposed to this short term loan bill as it stands. Senator Liz Krueger of Manhattan was the lone Senator to raise questions about the bill at the actual meeting, and the final vote was 14-5 in favor, with Malcolm Smith, Neil Breslin and Carl Kruger joining Senators Rivera and Krueger in dissent.  Meanwhile, Bronx Assemblyman Carl Heastie is sponsoring identical legislation in the Assembly. 

Those in favor of the bill (including the check cashing industry) argue that the current usury cap means those living paycheck to paycheck with poor credit history are unable to get a small dollar short term loan without going to a loan-shark or by turning to the local pawnshop.  However, it’s questionable how much better of a product these check casher-issued loans would be, and whether they may be better alternatives.

The sponsors are quick to point out these loans are not actually payday loans. Yet they do share certain commonalities: the loans would be short-term, high interest, and target the working poor.  Additionally, the bill would permit check cashers to make loans without regard to a person's ability to repay. Yes, you read correctly: there would be no required underwriting of the loans to consider someone's other debts and obligations.  Sound familiar?

Yes, there are a few protections, such as limits on refinancing of these loans, and the loan term would be not quite as short as typical payday loans.  But the bill still masks the true cost of these loans by failing to specify the maximum interest rate or fees that check cashers would be permitted to charge.  In fact, the bill would require the State Banking Department to permit maximum fees and interest rates comparable to those charged by similar lenders in other states – meaning the potential for APRs of more than 400%!  Incredibly, the bill would also require the Banking Department to ensure that the fees and interest rates are high enough to guarantee a profit for check cashers.  New York should be leading in certain ways, but not as the first state to guarantee a state-sanctioned profit.

What may be even worse is that the bill risks opening the floodgates to a host of abusive products, such as actual payday loans.  New York’s low and moderate income communities (including most of the Bronx) stand to lose the most by gutting consumer protections and opening the door to a new wave of predatory lending.  This should be a period of increasing consumer protections at both the federal and state levels, but instead the CFPB is under attack and our state legislators are pushing industry-backed bills that will create products that we’ll then have to spend plenty of money and time on teaching local residents not to use.

Instead of rolling back critical consumer protections, the NYS legislature should affirmatively promote responsible lenders that are in the business of meeting community credit needs in a safe and non-discriminatory manner.  A number of community development credit unions (including Bethex FCU in the Bronx) have, at least in the past, offered responsible products that met this same need of short term small dollar loans in a safe manner. The fact that many New Yorkers are struggling financially does not justify the legalization of exploitative lending practices. 

Gregory Lobo Jost is the Deputy Director of University Neighborhood Housing Program and a board member of the Neighborhood Economic Development Advocacy Project (NEDAP), both of which are members of New Yorkers for Responsible Lending.


  1. "...our state legislators are pushing industry-backed bills that will create products that we’ll then have to spend plenty of money and time on teaching local residents not to use."

    Are you saying that Bronx residents are too dumb and poor to know to stay away from these horrible financial products? Bronxites need some rich, educated outsider to show them the way to fiscal responsibility?

  2. Greg, all in all a good post. I wanted to clarify with you that I did indeed voted NO on this bill. I am adamantly against it. I was unable to be at the committee hearing because I had to take a meeting as the ranking member of the Crime Victims, Crime and Corrections Committee. The way this works is that the bill will go through the Finance and Banking committees, both of which sit on. I am planning on attending the Finance Committee hearing and I hope to bring up some of the major issues with this bill that you have highlighted.

    - Senator Gustavo Rivera

  3. Is there any editorial proofreading system set up here? Or does anyone with the password post whenever she likes?

    This mistake should be clear:


  4. Jeff Klein's so-called Independent Democratic Conference appears to be very dependent on the check cashing industry. Klein is a sponsor of this bill. His fellow IDC clan, Savino, Carlucci and Valesky voted for the bill in committee. I quickly looked at just his last filing before the general election -- Mr. Jeff "Independence" Klein got donations from these check cashing businesses -- DAVID'S FINANCIAL CORP. ($1000),PLS CHECK CASHER OF NY, INC. ($1000), THE CHECK CASHING PLACE ($2000),
    CORP. ($500).

  5. The New York City Department of Consumer Affairs conducted a study, “Neighborhood Financial Services Study,” which found that 9% of residents of Melrose, Queens and Jamaica, Bronx access Internet-based payday loans. These loans charge $25-$30 per $100 loaned, include no consumer protections and permit borrowers to take out multiple loans at one time, thus greatly increasingly the likelihood of people falling into a cycle of debt.

    While Mr. Jost mistakenly believes that New York has effectively prohibited this type of lending, clearly, the DCA found otherwise. Moreover, the rate at which the DCA survey respondents accessed payday loans exceeded the rate such products were used in Michigan, a state in which small loans are permitted by law.

    In addition, a consumer research study of New Yorkers conducted by Cypress Research Group found that in a single year nearly 3 million New Yorkers incurred overdraft protection fees from banks. A study published by the Pew Health Group’s “Safe Checking in the Electronic Age” project found that, if bank overdraft is treated as a short-term loan, with a repayment term of seven days, then the APR for a typical incidence would be 5,000%.

    The best way to ensure that New Yorkers aren’t forced to access Internet-based payday loans or incur exorbitant bank overdraft fees is to provide a viable alternative. So far, no one has. Banks and credit unions pay lip service to offering small dollar loans, but the facts clearly illustrate that they are unable or unwilling to meet consumer needs in this area. The proposed legislation (S.3841/A.7047), so derided by Mr. Jost, provides a regulated, responsible alternative to the options currently available to New Yorkers. This option includes several key consumer protections:

    • A strict limit of one loan at a time, coupled with a state-wide database to ensure compliance
    • A prohibition on loan roll-overs
    • A loan term ranging from 90 – 180 days
    • Equal payments over time with no balloon
    • A loan limit that cannot exceed 25% of monthly gross income; the monthly payment cannot exceed 10% of gross monthly income
    • Interest and fees capped by the New York State Superintendent of Banks
    • A borrower’s right of rescission
    • An industry contribution to a state-developed financial education program

    Rather than simply adopting a knee-jerk reaction to this legislation because it creates a loan product that falls outside what is considered the traditional realm of lending, those interested in seeing New Yorkers better served by the financial services industry should give the Short Term Financial Services Loan Act serious consideration.

    Jason Carballo, President
    Financial Service Centers of New York

  6. Thanks Jason Carballo for that I just threw up in my mouth.


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