Albany, NYPayday lending is already illegal in New York State, as it is in more than a dozen other states in the US. But that hasn’t stopped a myriad of Internet payday lenders from attempting to circumvent state laws by plying their trade online. What online payday lenders may not realize, or perhaps don’t care to know, is that Internet payday loans are just as illegal as making a payday loan in person, in the State of New York.
And Governor Andrew M. Cuomo has had enough. On August 6 of this year, Cuomo’s office issued cease and desist communiques to no fewer than 35 online payday loan companies currently plying their trade illegally in the state.
One of those lenders is Plain Green, LLC - the proprietor of Plain Green Loans.
Online payday lenders have come under fire for issuing short-term loans to individuals in need of a quick infusion of cash to get them through to their next paycheck. These are individuals who may not have the best credit rating, and may not be in a position to secure a loan by traditional means. And not lost on critics is the inherent convenience of doing everything online from the comfort of one’s own home, without the need to actually go into a bank with hat in hand.
But in exchange for that convenience, or the willingness to extend loans to individuals with poor credit histories, interest rates tend to be extremely high. Some say, exorbitant.
Plain Green Loans, for example - one of the companies named in Governor Cuomo’s cease and desist order - charges annualized interest rates for short-term loans as high as 379 percent. According to American Banker (7/23/13), that’s the APR (annual percentage rate) for a Plain Green Loans client who borrows $250 for a period of 16 weeks. At the end of the term, $440 will be due. For a larger loan of $2,000 borrowed over a period of 76 weeks, the APR is about 160 percent. In terms of actual dollars, $5,206 will be paid back.
In other words, that $2,000 loan will cost the borrower $3,206 in interest and financing charges.
Spotloan, a product of ZestFinance, issues low-tech payday loans that appear to come in with an average APR of 390 percent. According to American Banker, Spotloan’s loans range from $300 to $800 with terms ranging from three to eight months. ZestFinance has been lauded for observing complete transparency and disclosure in its fee structure, but critics continue to decry the cost when compared to more traditional financing. Citing an example issued by American Banker, a $500 Spotloan issued over a five-month term would cost the consumer $1,058 in total interest and finance charges due at the end of the term.
As with the previous example, the interest and financing charges are more than the original principle.
And that’s not the half of it, according to Cuomo’s office and an investigation undertaken by the New York State Department of Financial Services (DFS). Not only were the Internet payday loan vendors breaking New York State laws by issuing payday loans in the first place, some loans carried an APR as high as 1,095 percent.
“Illegal payday lenders swoop in and prey on struggling families when they’re at their most vulnerable - hitting them with sky-high interests rates and hidden fees,” said Governor Cuomo, in the statement. “We’ll continue to do everything we can to stamp out these pernicious loans that hurt New York consumers.”
It should be noted that ZestFinance and Spotloan were not named in Cuomo’s communique.
In his crackdown on illegal Internet payday loans, Cuomo announced that the Office of the Superintendent of Financial Services issued letters to 117 banks with regard to the Automated Clearing House Network. The idea is to withdraw automated access to consumer bank accounts in New York State - access that is integral to the success of the online Internet payday loan vender.
In the statement from the Governor’s office, it was revealed that often an Internet payday lender will debit only interest and finance charges on a regular basis from a borrower’s account - leaving the borrower with the mistaken belief that a portion of the principle is also being paid. In most cases, according to the release, the consumer must make the first move and actually contact the lender to make arrangements to include debits to pay off the principle as well.
Section 340 of the New York 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. Along with New York, Internet payday loans are illegal in Arizona, California, Ohio, Montana, Arkansas, Pennsylvania, West Virginia, Georgia, New Hampshire, Vermont, Massachusetts, Connecticut, New Jersey, Maryland and the District of Columbia.
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