(Update: Please note the corrections on the actual vote below.)
Opinion by Gregory Lobo Jost
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
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 York State
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
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. Manhattan
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.
should be leading in certain ways, but not as the first state to guarantee a state-sanctioned profit. New York
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.