Alert August 20, 2013

New York Department of Financial Services Issues Letters to Banks

As a result of its investigation into illegal online payday lending, the New York Department of Financial Services announced that it sent cease and desist letters to numerous payday lenders directing them to cease offering to lend and lending money at usurious rates. Under New York law loans made by non-bank lenders in the amount of $250,000 or less with an interest rate that exceeds 16% per annum constitute civil usury. Further, loans made with interest rates exceeding 25% per annum constitute criminal usury. DFS’s investigation uncovered that numerous out-of-state lenders were using the internet to solicit and provide illegal payday loans in violation of the New York’s usury limits. DFS noted that it “will aggressively pursue appropriate enforcement against payday lenders that refuse to cease and desist their illegal activity in New York.”

Of import, DFS cited access to the Automated Clearing House network as the main method by which these payday lenders are able to conduct their illegal activities, and sent letters to over 100 banks requesting their assistance in cutting off illegal payday lenders’ access to the ACH network. This is the second such effort by DFS to curb payday lending. In March 2013, DFS issued warning letters to debt collectors about collecting illegal, usurious loans made in New York, including payday loans made over the internet, by phone or by mail (see March 5, 2013 Alert).