Relates to interest rate limitations for financing arrangements and the extension of credit

• Democratic24

◆ The sponsor's argument

Why Samra Brouk says this is needed

Predatory lenders are continually masterminding new ways to evade New York's usury laws to trap low-income people and people of color in long cycles of debt with high-interest loans. New York's usury laws on their face apply to "loans." To evade these laws, predatory lenders have either aggressively lobbied for explicit carveouts from New York's usury laws or cunningly designed credit products that they deceptively claim are technically not "loans." This bill would close current and potential loopholes in New York's usury laws, by ensuring that any loan, advance, or other "financing arrangement" is subject to those laws, regardless of industries' shrewd attempts to market their credit products as something other than high-cost, predatory loans. In New York, it is a felony to charge more than 25% interest on a loan, effectively making it unlawful to engage in predatory lending in New York. Thanks to our strong usury laws, for example, New York has successfully cracked down on predatory payday lenders making illegal online payday loans to low-income New Yorkers and New Yorkers of color. Nevertheless, some predatory lenders, such as rent-to-own and merchant cash advance companies, have succeeded over the years in securing carve- outs for their loans which typically carry exorbitant, triple-digit interest rates - from our strong usury laws. These predatory lenders target New York's communities of color in particular, taking advantage of the near-complete absence of traditional financial institutions in redlined neighborhoods. A newer breed of predatory lenders, which call themselves "financial technology companies" or "fintechs" and often operate through apps, increasingly seek to circumvent New York's usury laws by misrepresenting their credit products as something other than loans. For example, so-called "Earned Wage Access" companies claim that their paycheck advances are not "loans" by masking their fees as "tips," even though their fees amount to triple-digit interest rates far exceeding New York's 25% criminal usury cap. Similarly, litigation funding compa- nies have gotten away with claiming that their advances on lawsuit settlements which carry upwards of 124% interest are technically not "loans." By eliminating these carve-outs from New York's usury laws and prevent- ing future evasions, this bill would set a new bar nationally for state protections against predatory lending.

This is the sponsor's own case for the bill, quoted from their memorandum. It is not Agora's description of what the bill does.