BILL NUMBER: S9275
SPONSOR: BROUK
 
TITLE OF BILL:
An act to amend the general obligations law and the banking law, in
relation to limitations of rates of interest for financing arrangements
and the extension of consumer credit; to amend the penal law, in
relation to criminal usury; and to amend the personal property law, in
relation to certain functions of the attorney general
 
PURPOSE:
To close current and potential loopholes in New York's usury laws, by
extending New York's usury laws to all financing arrangements and clear-
ly defining all amounts payable in connection with a financing arrange-
ment as interest.
 
SUMMARY OF PROVISIONS OF BILL:
The End Loan Sharking Act (ELSA) amends the general obligations law
(GOL) to extend New York's usury laws from "loans" and "forbearances" to
all "financing arrangements." The bill also amends the GOL and the bank-
ing law to clarify that "interest" includes all finance charges, such as
"fees," "service charges," and "tips." The bill further amends the bank-
ing law to require individuals and entities that engage in the business
of providing finance arrangements to be licensed by the Department of
Financial Services, and explicitly bars licensees from violating New
York's criminal usury law. The bill further amends the GOL to empower
the attorney general to promulgate rules and issue guidance interpreting
financing arrangements.
 
JUSTIFICATION:
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.
 
LEGISLATIVE HISTORY:
New bill.
 
FISCAL IMPLICATIONS FOR STATE AND LOCAL GOVERNMENTS:
None.
 
EFFECTIVE DATE:
This act shall take effect immediately after it shall have become law.

Statutes affected:
S9275: 5-511 general obligations law, 5-511(1) general obligations law, 5-513 general obligations law, 5-517 general obligations law, 14-a banking law, 14-a(2) banking law, 340 banking law, 351 banking law, 351(1) banking law, 190.40 penal law, 190.42 penal law, 508 personal property law